Q71 Mr Bacon: Mr Rowlands said it is a £30 billion programme, is the other £15 billion something else? Is that equity or what?
Ms Leahy: That is the discounted value. I would expect the other figure to be an undiscounted.
Mr Rowlands: The other figure is undiscounted.
Mr Bacon: Right. I am slightly surprised to have so little accurate information on something so fundamental.
Q72 Mr Williams: As we may be returning to this subject, will you see if you can get that information to us as quickly as possible after this hearing. I think we have to ask the Department that.
Mr Rowlands: Yes.5
Q73Mr Bacon: May I ask, while I am on the subject, is this debt all on the balance sheet?
Mr Rowlands: Yes.
Q74 Mr Bacon: As far as the Government is concerned?
Mr Rowlands: This transaction is on the balance sheet.
Q75 Mr Bacon: If I could ask you to turn, Mr Rowlands, in the first Report to page 31, which is figure 13. This is another figure of£450 or, in fact, £455 million which are the transaction costs. The Report says that the transaction costs were £455 million. In this Report here it summarises some of these transactions costs. Much has been made of the poor asset condition and the lack of knowledge about asset condition. You will notice Ove Arup, the engineering advisers, were paid £6 million on the assessment of the asset condition whereas at the top there Freshfields-a very blue chip law firm which I am sure we would all want to go to if we could-were paid £29 million. So the engineers who were assessing the asset conditions got £6 million and the lawyers got £29 million. Do you think that is the right way round? Do you think that is an accurate reflection of the priorities the Department should have?
Mr Rowlands: Yes, because you would not have anywhere near bottomed the state of these assets by spending two or three times as much money with Arup's.
Q76 Mr Bacon: Could you speak up.
Mr Rowlands: Sorry. You would not have bottomed the problem with the state of these assets by simply spending two or three times as much money with Arups or, indeed, any other engineering consultancy. This is about the state, for example, of Victorian tunnels which can only be discovered when you start to take the brick work off and do the remedial work and that is the risk the private sector is taking.
Q77 Mr Bacon: It was right to spend five times as much on lawyers as on engineering consultants?
Mr Rowlands: In the context of this deal, yes, because the risk that was so difficult to establish was being passed to three infrastructure companies to handle.
Q78 Mr Bacon: One of the things that worries me about this, and I share Mr Trickett's concerns, you answered Mr Trickett's question: "This is good value for money". "Do you think it is value for money?" and you said "Yes". Mr Trickett earlier had asked Sir John if it was good value for money and he said "We cannot tell". Quite how the two are in sync with one another, I do not know. It cannot both be the case that we do not know, we simply cannot say whether it is good value for money or not, and that you say it is good value for money. In addition to that, you then say that there are these huge unquantifiable risks. It reminds me of some computer contracts we have looked at where precisely because the risks are unquantifiable the Government ended up recognising, and the Treasury ended up recognising, that they are unsuitable for Public Private Partnership or PFIs. Why is that not the case with this?
Mr Rowlands: Because this is not an IT contract. It has been structured on the basis where the NAO's Report does acknowledge that basically all the project risk is with the private sector. It will not come back to us. These contracts place the risk of remediating these assets firmly in the private sector's hands. They have bid a price for it and if they have got the price wrong then they will bear the consequence in terms of their rate of return or eventually loss of their equity.
Q79 Mr Bacon: This little lot here on page 31, these fees that are referred to for various advisers and so on, adds up to £170.4 million, the transaction costs in the same Report were £455 million. What is the rest?
Mr Rowlands: The rest is composed of bidders' costs, relatively small sums for the losing bidders and, as the Report shows, from memory I think it was £134 million for Tube Lines' bid costs and £116 million, from memory, for Metronet's bid costs.
Q80 Mr Bacon: There is a reference in the Report also to the repayment. Do you not think it would be helpful-perhaps the National Audit Office could answer this-to have a chart summarising all these transaction costs in one place?
Sir John Bourn: Yes, and we will rework it and give it to you.6
Mr Bacon: I have run out of time, unfortunately. Thank you very much.
Mr Williams: You can have extra time if you want.
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