Q161 Mr Curry: Which bit has she got right?
Mr Rowlands: She has captured the notion of the complexity of the PPP but for the rest she is a journalist, it is good copy but I do not agree with it.
Q162 Mr Curry: I am a journalist as well. The suggestion that the thing can be defined as being wrong because it is written by a journalist, which seems to be the implication you are making, does seem to me to be one I would be slightly cautious about in general. Has she misinterpreted the National Audit Office Report or is that a criticism you would make of that Report?
Mr Rowlands: I do not know what her interpretation is apart from the words on the page in The Times with which basically I do not agree. I do not believe this was a gravy train for consultants or advisers and the NAO's own Report says the costs were reasonable in relation to the scale and complexity of the deal. These are £30 billion worth of contracts. The costs though in absolute terms largely represent about 112% of the total cost of the contract. That is not outrageous or unusual in relation to a contract.
Q163 Mr Curry: It is true that on this occasion on this deal, which you say is enormous, very long in its timescale and extremely complex one did have two principal political personalities engaged who had opposite views of the way to go forward and neither of whom were inclined to give way, and in the end it had to be fought out on a legal basis. All might be changed now though, we will not comment on that, but would it have been easier, do you think, had there been a greater harmony between those personalities?
Mr Rowlands: I suspect the answer is yes but that is about as far as I can go really.
Mr Williams: It is a question of how far the witnesses can go in this direction.
Mr Curry: No, no, I do not intend to take him any further at all. The Audit Office Report itself made reference to that, which was why I asked the question.
Mr Williams: It puts him in an embarrassing position as a civil servant.
Mr Curry: We ought to have the Chancellor here.
Q164 Jon Cruddas: Just one question that has not been covered in all this. The Committee of Public Accounts in other analysis of PPPs looked at the way the terms and conditions of employment had taken the strain at times. As far as I picked out, when I read these Reports, there are two references to the employment conditions of those workers transferred over which I think amount to some 7,500. It hints that certain understandings were made about the protection of those workers. Could you give some details about that?
Mr Rowlands: Yes. This is from memory. It was made explicitly clear by the Government at the time the PPP was initially conceived that the terms and conditions of any members of staff transferring into an Infraco would not suffer detriment and that in particular the Infraco's membership would remain in the existing pension scheme and not be placed in another one.
Q165 Jon Cruddas: Does that include new recruits as well because there has been quite a significant amount of recruitment as well?
Mr Rowlands: I need to come back on that, if I may, but my recollection is it did not and could not cover new recruits because you could not define the position 25 years out for a new recruit into one of the Infracos.13
Q166 Jon Trickett: Something which has not been addressed and it is very hard to understand from this Report, is this issue of the compensation we pay to bidders. Companies or consortia which were bidding for the contracts were reimbursed the cost of their bid. I think we see reference to it on paragraph 3.16 on page 32. It seems that one company bid for two contracts and was reimbursed £116 million, which was Metronet, and another company called Tube Lines which bid for only one line was reimbursed £134 million, more than the consortium's bid for two lines. When I went to paragraph 3.16 and table 14 on that page there, there is an analysis of the expenditure by Tube Lines on the bid and it appears that most of the expenditure which that company had took place after the contracts had been awarded. First of all, how can you reconcile the fact you paid more to a company which was only bidding for one contract than you paid to a company which was bidding for two contracts? Secondly, can somebody explain this table to me in a way which makes sense? If I have understood it correctly how on earth have we given them the money for bid costs after they have won the bid?
Mr Rowlands: Can I start with your second question, if I may?
Q167 Jon Trickett: Sure.
Mr Rowlands: Can I begin by, I am afraid, repeating myself. All winning bidders recover their bid costs in their contract prices. If winning bidders do not recover their bid costs they go out of business in the end. What this process did was make visible, if you like, what the bid costs were in relation to these particular contracts. To take your second question first, most of the work that both bidders did happened in the latter stages of the process because this was when Metronet were putting into place the contracts that it was supplying its outputs through and Tube Lines was beginning to do due diligence in relation to the contracts it was going to let. This is a heavyweight expenditure on financial and legal advisers in relation to closing out the contracts. So, for example, on the financial side, the Tube Lines' bid costs include tens of millions for the financing fees for debt that was put in place and tens of millions for the insurance with which they wrapped some of the debt to get a better interest rate on it and insure some of it in the market.
Q168 Jon Trickett: Can we have an analysis of the differences between the two amounts of money?
Mr Rowlands: Indeed. I have already promised we would send these details.14
Q169 Jon Trickett: It has been a long hearing for you and no doubt for others as well. Secondly, given the fact that competitive tension had gone out of the bidding process once a preferred bidder had been determined, how can we be certain that the bidders who had then been excluded would have spent less money on the post tender bidding process, as you seem to have described it? It seems to me hundreds of millions of pounds here, probably £200 million between the two contractors, after they had been given the tender but still allegedly part of the bidding process. Where was the competitive tension to make sure they got a decent price for those amounts of money?
Mr Rowlands: I am afraid that once this competition moved to preferred bidder, although there were reserve bidders they were not undertaking this activity, they were not closing out on the deals so they were not spending this kind of money.
Q170 Jon Trickett: The taxpayer reimbursed that amount of money, although it was part of the bidding process, the bidding had finished, had it not?
Mr Rowlands: But they had to move from preferred bidder through to financial close and that meant putting in place very large debt facilities and financing costs.
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