Q1 Chairman: Good afternoon and welcome to the Committee of Public Accounts where today we are looking at the Comptroller and Auditor General's Report on The Paddington Health Campus scheme. I should like to welcome back Mr Hugh Taylor, who is the Acting Permanent Secretary at the Department of Health, also Bob Bell, who is Chief Executive of the Royal Brompton and Harefield NHS Trust, Dr Gareth Goodier, who is the Chief Executive of the North West London Strategy Health Authority, Julian Nettel, who is the Chief Executive of St Mary's NHS Trust and Jack Pringle, who is President of the Royal Institute of British Architects. A very distinguished crowd of witnesses; thank you very much for coming. Mr Taylor, perhaps I could start with you. Five years and £15 million wasted. Why did it take so long to decide that the business case did not stack up and what were you doing about it? By the way, while you are thinking of an answer, may I just say that the Committee had a very interesting visit to the site of the Campus in the shape of Mr Bacon, Greg Clark and myself; we are very grateful to all those who hosted that visit and we learned a lot. Mr Taylor over to you.
Mr Taylor: The first thing to say is that the original vision for the scheme was very strong and there was a lot of commitment to it from the trusts involved. There were issues with the scheme from the outset and with hindsight it is clear that there were flaws in its set-up. Throughout the project developments occurred which in effect kept it live, which people felt ought to be addressed, which, towards the end of the scheme as various options for looking at the land requirement were considered, could have turned the economics of the scheme upside down. So it is not difficult to see in real time why the delay occurred, but in retrospect, it was clearly regrettable and all of us now recognise that it went on too long.
Q2 Chairman: Do you accept that, in retrospect, you were too hands-off as a Department? Put it another way, are you satisfied that the Campus partners had the resources and the ability to put together such an enormous scheme without greater help from you?
Mr Taylor: The Report which was done in 2004, in which the Department participated with the NAO, indicated our concerns about the level of capability on project management of the scheme. The Department was engaged with the scheme and did seek to support colleagues in the trust and in the SHA on the scheme as it went forward. Of itself just greater departmental involvement in the process would not necessarily have helped. The key question, which the NAO Report has brought out, is whether critical challenge should have been brought to bear on the scheme at an earlier stage than it was. With hindsight the answer to that question is yes, though I understand why colleagues kept looking at options as they went along.
Q3 Chairman: Did you know what was going on? Could you look at paragraph 3.3 please? Are you telling us that you were sufficiently on the ball with this? It was the Treasury not you, was it not, that insisted on a new outline business case and a review of the scheme? Was it the Treasury?
Mr Taylor: Yes, it was indeed.
Q4 Chairman: Why did you leave it to the Treasury? Why were you not actually in there insisting that their review should take place?
Mr Taylor: That is a legitimate criticism.
Q5 Chairman: It is a fairly fundamental criticism, is it not?
Mr Taylor: The outline business case was originally qualified by the London regional office, then a part of the Department. It is clear from the NAO Report that the evaluation of the cost of the project escalated. It is clear, and we all accept the NAO conclusion, that in 2002-03 an opportunity was lost either frankly to put a stop to the scheme or to seek a further outline business case at that stage. Properly it was the responsibility of the partners and the SHA to take that step at that stage, but now we would as a Department be closer to the scheme than that and probably expect to be involved more directly. In any event, it is also true now that an outline business case coming to the Department would have central scrutiny in a way that was not the case at the time.
Q6 Chairman: Will you look at paragraph 16 and will you explain to us why the Department would not accept any outline business case unless the scheme and any supporting land deal was off balance sheet? Why did it have to be off balance sheet?
Mr Taylor: The Department's concerns at the time were not specifically whether the scheme should be on or off balance sheet. The Department's concerns were about the affordability of the scheme.
Q7 Chairman: Hang on. It says here in paragraph 16 ". . . the Department would not accept any OBC outline business case if the OBC or supporting land deal was on balance sheet".
Mr Taylor: It says actually ". . . the Campus partners believed" that was the case. The Department did not, as far as I am aware, say to the partners that it had to be off or on balance sheet. What we should look at is the affordability of either option. If it ended up being on balance sheet, then an affordability question would arise and to my recollection, having looked at the papers, one of the points that was made to the trust partners in January 2005 was that if the balance sheet treatment was not right, the potential costs in terms of capital cost to the Department would be so significant that the scheme would be unaffordable.
Q8 Chairman: Would you look at figure 3 please on page 16? You seem to have a fairly poor grip on your hospital building programme. As far as we can see from this figure, on average schemes are doubling their cost after approval. Why is this?
Mr Taylor: This figure disguises some of the different drivers of additional costs in the way it is presented. For example, from the first quarter of 2000 to the first quarter of 2006, building cost inflation has risen by 48%. So, invariably across these different schemes, building cost inflation would be one of the factors which are taken into account. Similarly, as the lifetime of a scheme goes on, and sometimes they are quite long, service changes, service additions will be added, will be made to the scheme, quite legitimately to take account of growth sometimes and because the money available to the NHS has been increasing it is quite permissible to have service additions. Similarly, we have, over this period, sent new guidelines out to the NHS on issues to do with quality of patient care, to do with the number of single rooms in hospitals and so on and those will have affected the figures. There are a number of driving factors behind those figures, but that is not to say that they are satisfactory; they are not and we have learned lessons from this and other schemes which mean we are now approaching PFI approvals and monitoring in a very, very different way. For example, we are now looking at all cases above £75 million, at outline business case-
Q9 Chairman: I am going to have to stop you there because we have very little time. We shall just have to try and get down the detail of this particular scheme. Mr Nettel, why did you put forward such an inadequate case in 2000 do you think?
Mr Nettel: The case was put forward by all the partners involved. This was a whole system scheme involving the two trusts, Imperial College, the then health authority, Kensington, Chelsea and Westminster and we all agreed that this was the way in which we wanted to develop hospital services in north-west London. As my colleague Mr Taylor has indicated, there was huge support for this. St Mary's has to be redeveloped; it certainly needed to be redeveloped when the scheme was first considered and that has not changed. There were serious and continued to be serious problems about specialist services in north-west London for children and adults because of the way in which they are currently configured. Paddington was the way in which we could get those issues resolved. It is true to say, as the NAO indicates, that the business case in 2000 was a high-level business case. It was agreed with the regional office at that time that it would be a high-level business case and that there would have to be further work done on that case after its initial approval. That is what happened. In a way, that is what in a sense we have been trying to recover from. That process probably was flawed, looking back, and has led to the difficulties that are now set out in the Report from the NAO.
Q10 Chairman: Mr Bell, may I ask you to look at the chronology, as there is something I do not understand. Is it right that in December 2004 the scheme was going to have an estimated deficit of £10 million and then you were presumably happy with that, but you withdrew support in May 2005 when the estimated deficit had decreased to only £3 million? Is that right? What was going on?
Mr Bell: The scheme that was approved by the Royal Brompton and Harefield Trust in December 2004 was approved subject to a number of conditions. Those conditions were not fulfilled and in May 2005 in fact we found ourselves having to be in a position to resubmit an outline business case addendum without these conditions being-