1.26 Under the 1982 Civil Aviation Act the Civil Aviation Authority is entitled to recharge the Department for services Ministers have requested, the rest of its costs being recharged to the aviation industry. The Department were alive to the risk that it (and NATS) might recharge costs that were not strictly attributable to the PPP process. The Department set up arrangements to ensure that costs recharged by the CAA and NATS were applicable. We examined these arrangements and found them satisfactory.
1.27 The Department were not directly involved in how NATS or the Civil Aviation Authority selected and appointed their own advisers, nor in setting their basis of remuneration. The National Audit Office does not have rights of direct access to either body; but both have assured us that their advisers were appointed through a competitive process. The cost of NATS' legal advice was over double the initial estimate, in part due to the costs of the slippage in completion dates that caused the overrun on the Department's legal advice (Figure 12). NATS also told us that their estimates for work had been on the basis that much of this work, such as redrafting parts of other documents such as the Information Memorandum to bidders and NATS' operating licence, would fall to the Department's advisers and the Civil Aviation Authority. In the event, there was mutual agreement that it made sense for NATS' advisers, who had relevant knowledge and expertise, to take on more of this work.
12 |
| The costs to the Department of implementing the Partnership | ||
|
| The costs of the PPP process exceeded estimates mainly because the scale of advisers' input was underestimated. | ||
|
| Cost | Estimate (£000)1 | Outturn (£000)4 |
|
| Lead Advisers, CSFB | 4700 | 8885 |
|
| Legal Advisers, Slaughter and May | 2009 | 6240 |
|
| Accountancy Advisers, Deloitte and Touche | 960 | 1946 |
|
| Other advisers 2 |
| 926 |
|
| 8279 | 9815 | |
|
| Advisers' costs recharged by the Civil Aviation Authority | 933 | 2307 |
|
| Provision for redundancies | Maximum 5000 | 3263 |
|
| Legal Advisers costs recharged by NATS. (Lovells) | 2750 | 7454 |
|
| Other advisers costs recharged by NATS 3 | 2234 | 3125 |
|
| TOTAL | 27165 | 43961 |
|
| NOTES 1. Estimate set in August 1999 using estimates provided by advisers, NATS and the CAA. 2. The Department did not separately identify the costs of in-house staff and resources used. 3. NATS other advisers included Herbert Smith who provided legal advice on NATS' PFI contract, Gemini Consulting who helped NATS develop a more commercially orientated and outward looking Business Plan in preparation for the PPP, Deloitte and Touche on audit and taxation matters, HSBC on PPP issues, and William M Mercer on Pension scheme aspects. 4. Costs are in respect of activities in completing the PPP deal, incurred up to July 2001. | ||
|
13 |
|
Transaction costs for trade sales examined by the National Audit Office |
||||
|
|
|
Business Sold |
Date sold |
Sale Costs £ million |
Sale Proceeds £ million |
Sale Costs as a percentage of proceeds % |
|
|
|
Rolling Stock Leasing Companies |
Feb-96 |
10 |
1743 |
0.6 |
|
|
|
Railfreight Distribution |
May-96 |
3.4 |
255 |
1.3 |
|
|
|
Scottish Bus Group |
Oct-91 |
1.8 |
100 |
1.8 |
|
|
|
HMSO |
Sep-96 |
1.7 |
50 |
3.4 |
|
|
|
British Coal |
Dec-94 |
34 |
963 |
3.5 |
|
|
|
National Bus Company |
Oct-88 |
12.6 |
324.2 |
3.9 |
|
|
|
LT Bus Companies |
Jan-95 |
10.1 |
233 |
4.3 |
|
|
|
Royal Ordnance |
Apr-87 |
8.45 |
190 |
4.4 |
|
|
|
Jul-01 |
44 |
804 |
5.5 |
|
|
|
|
National Transcomm |
Oct-91 |
4.2 |
70 |
6.0 |
|
|
|
Source: National Audit Office |
||||
1.28 Though the costs of the PPP process were higher than expected, we have identified from comparisons with other trade sales examined by the National Audit Office that the Department's initial estimates of the effort required may have been unrealistically low. As each deal is different any comparisons have to be treated with care. As a proportion of the value of the asset sold, the transaction costs are higher than average but not evidently unreasonably so given the need in this case to negotiate an ongoing PPP as opposed to a more straightforward trade sale.