Q31 Mr Touhig: You do not?
Sir John Chisholm: As I said before, the taxpayer was by far the biggest beneficiary of the whole episode. Over a billion pounds has been created for the taxpayer and that is a very acceptable outcome. In 2002-03 the business was unrecognisable compared to what it is today. The elements which create the value today did not exist in 2002-03. This is all an achievement by Carlyle and the management team.
Q32 Mr Touhig: It is an achievement, Sir John, by a lot of collaboration between QinetiQ's management and Carlyle, the successful bidder. The point I am making to you is when they became the successful bidder they changed the incentive scheme and, as a result, you and your senior colleagues became very rich indeed.
Sir John Chisholm: Perhaps I could help you with an element of that. Post the agreement for Carlyle and Permira to go forward for the last two, they were both asked to talk to the management. Up to that time there had been no contact other than very formalised management presentations, so it was natural that before their confirming their bids they would want to decide who should be the management in the company into which they were investing.
Q33 Mr Touhig: But we are told in the Report, Sir John, that following the QinetiQ Board's evaluation of the Carlyle bid you argued that the 10% of equity offered to management employees was low.
Sir John Chisholm: I am glad you mention that because that is a letter of five pages with about 50 paragraphs in it. That particular paragraph is just one of those. The issue behind that 10% being low was principally that I suggested to Carlyle that their idea of incentivising or just bringing the top half a dozen or dozen managers into the share scheme was not right in the context of QinetiQ, it was dependent upon the efforts of far more people than that. I suggested to them that a scheme which allowed up to 300 managers to invest in the company, plus an opportunity for the staff at large to invest in the company, would incentivise and bring along far more people in the company and we needed those people in the company.
Q34 Mr Touhig: You were supportive of Carlyle's bid and when they eventually got the company they improved the lot of the top management. The MoD made it clear to bidders that they could not be reimbursed for the cost of their bids, yet QinetiQ, when they got up and running, allowed Carlyle to take £16 million out of the company to reimburse it for its bid. Sir John, is it not a case of your scratching their back and they scratch yours? You stitched up the MoD.
Sir John Chisholm: I am sorry, I have lost which question I am answering there. Is it the question of the reimbursement for the bids?
Q35 Mr Touhig: Although the MoD said that the bidders should not be reimbursed for their bids, when it got up and running QinetiQ gave Carlyle £16 million to reimburse it for its bid.
Mr Jeffrey: If I might intervene. The extent to which the bid cost could fall to the company is quite well precedented in other acquisitions of this sort and if it had not fallen to the company in the end it would have had a bearing on the price that was paid, so it is swings and roundabouts.
Q36 Mr Touhig: But you made it clear, Mr Jeffrey, that there should be no reimbursement and when QinetiQ got up and running that was one of the first things they did.
Mr Jeffrey: It was made clear in relation to unsuccessful bidders but not, as I understand it, in relation to the successful bidder.
Q37 Mr Touhig: It just seems to me that QinetiQ helped Carlyle win the bid and in turn Carlyle decided to improve the management incentive scheme which overnight created millionaires out of the senior management, and finally QinetiQ handed back £16 million of the company's money to Carlyle to cover its bid costs. Some people would suggest that was tinged with corruption.
Mr Jeffrey: I would not accept that, Mr Touhig, because-
Q38 Mr Touhig: It stinks to high heaven, Mr Jeffrey.
Mr Jeffrey: The sequence of events is as I have described it and the key decisions were taken by the Department. They were taken by the Department in a fashion which, although it admitted discussions with QinetiQ about things that it was reasonable for QinetiQ to be involved in, there was submission of advice to ministers separately from QinetiQ management and it was taken on the basis of fairly serious financial advice at every stage. I do not think the theory that this was a great conspiracy by QinetiQ and Carlyle to stitch up the Department really hangs together.
Mr Touhig: You said decisions were taken by the Department but it seems to me, Mr Jeffrey, that you lot were taken for a ride. That is it, Chairman.
Q39 Dr Pugh: There are two conclusions that leap out from the Report as a whole. One is that you created a successful independent company and the second conclusion which the NAO come to is that they are unable to reach any conclusion on whether you have actually delivered the objectives of the scheme in the first place, that is in terms of contract prices, enhanced flexibility or improved services. Do you agree with both of those conclusions of the NAO Report, one that you created a successful independent company, and I am sure you will agree with that, and, two, that they cannot and nobody can reach any conclusion on whether you actually delivered what you set out to do?
Mr Jeffrey: Is your question addressed to me?
Q40 Dr Pugh: Primarily, yes, the Ministry of Defence.
Mr Jeffrey: I certainly agree that the outcome of all of this was the creation of a successful independent company and it is now flourishing in international markets and is doing so in the context in which our reliance on it is diminishing.