Q161 Mr Bacon: Mr Forden, it is true, is it not, that under the contract that you originally had there was no legal obligation on Octagon to pay you anything so it had to be done, as it were, by negotiation and persuasion? That is right, is it not?
Mr Forden: That is correct.
Q162 Mr Bacon: Mr Coates, as far as the way in which the hospital took its gain of £30 million or so, the 30%, it is true that they took the gain over the life of the contract because that was the guidance from your Department, was it not? That is correct, is it not?
Mr Coates: That is the guidance from our Department, yes.
Q163 Mr Bacon: Octagon took its gain in a lump sum upfront. It is interesting to see the instinct of the private sector is to take a lump sum of cash when they get the chance, and Mr Forden said he liked cash, but the hospital's guidance from your Department was to take it over the life of the contract. What is it that the private sector know about taking cash upfront that you do not? Have you never heard the expression "cash is king"?
Mr Coates: I have heard that expression and what the private sector are doing by refinancing, as you rightly observed earlier, is reducing some of the risk for the contract. They are turning uncertain profits into certain profits, so they take it as cash.
Q164 Mr Bacon: But surely whether in the private sector or the public sector, given the choice between having a large lump of cash and not having a large lump of cash, most people would go for the first, would they not, in the public sector as well?
Mr Coates: No, I do not believe so.
Q165 Mr Bacon: You do not think so? Not the Department of Health obviously.
Mr Coates: No, the issue is whether the trust is protected from losing that benefit if they take it over time.
Q166 Mr Bacon: Yes indeed and if Octagon were to fail-and by the way you said there have been no defaults so far over PFI; try telling that to any of the school teachers in Norfolk with the Jarvis negotiations where the county council managed to lose nearly £2 million, which may not sound a lot in PFI terms but it is equivalent to the budget of a primary school in my constituency for eight years and a huge amount of time for governors and so on, and then a big argument about who owns the intellectual property for the designs of the schools, mostly dreamed up by the governors and the teachers and the parents themselves rather than by Jarvis who did not actually do a whole lot-if Octagon were to fail, and let's hope it does not, and Mr Forden had had his lump sum of cash upfront there would be no argument about it, would there; possession is nine-tenths of the law, but if Octagon were to fail and he had not had his lump sum upfront then he must necessarily have less protection than if he had already had it? Is that not the case?
Mr Coates: I do accept that. The best response I can give to you is-
Q167 Mr Bacon: You already have. You have accepted my point.
Mr Coates: If I may, if the trust had taken that lump sum gain and Octagon had borrowed the money to pay the lump sum to the trust, so the trust got £34 million and Octagon borrowed £34 million to pay the trust that money, but Octagon then went bankrupt, the trust liability would then be for-
Q168 Mr Bacon: Are you suggesting that Octagon was at risk of going bankrupt if the hospital had taken its lump sum upfront in the way that Octagon took its own lump sum upfront?
Mr Coates: No, I am not suggesting that.
Q169 Mr Bacon: That is what it sounded like.
Mr Coates: I am not saying that. If you follow your train which is to say if Octagon went bankrupt, what would happen, if the trust had insisted that Octagon borrowed the money to pay the lump then that would have been an additional liability that the trust would have had to pay to the bank on termination.
Q170 Mr Bacon: It would already have had the money to do that so it would not necessarily have made any difference.
MrCoates: If it was three years later then they would not have had the money any more.
Chairman: I am afraid that is your 15 minutes up, Mr Bacon. Helen Goodman?