Q71 Mr Curry: Perhaps to seek some external advice as to whether this was going down a reasonable path or was getting a little bit excessive.
Mr Jeffrey: It comes back to the point I was making earlier, Mr Curry, that in the end this was a decision by Carlyle. As I said, we might have considered capping it, but-
Q72 Mr Curry: It is the process which concerns me. If Sir John does very well out of it, fine, but it is the process which concerns me, the point at which these decisions were taken in this process.
Mr Jeffrey: I would be reluctant at this range to say that the Department should definitely have insisted against Carlyle's wishes on capping the benefits that executives could gain. As I said earlier, one of the consequences if we had told them to do so was that it might have been that the value of the company would reduce and essentially we would have been second-guessing the private sector partner whom we were bringing in in order to apply their expertise to build the business up.
Q73 Mr Curry: Perhaps if the whole private equity controversy had been happening a few years earlier it would not have been possible to operate in that way, would it, the whole public focus would have been much more concerned. When the Chairman suggested that the Treasury pushed through this sale presumably the Treasury had got some money on the books for the receipts, had it not?
Mr Jeffrey: The Spending Review covering the period 1999-2002 had assumed the receipt of £250 million for this PPP but, as I remarked earlier, the Treasury agreed that we should have credit for that in the defence budget in the last year of the Spending Review period even if the eventual sale slipped into the following year, which it did. That rather lays the lie to the view that we were hustled into this by the Treasury.
Q74 Mr Curry: Lord Moonie, who was the Minister at the time, on the Today programme about ten days ago said specifically that he had advised the then Chancellor to defer the sale on the grounds that more could be obtained if the sale came later. You were aware of that, were you?
Mr Jeffrey: I am aware of that. Lord Moonie can clearly speak for himself but I have not been able to find within the Department, and we are talking quite a number of years later, any evidence that people were saying, "We don't want to do this but we have to because of the Treasury". It does not feel like that. The Committee suspended from 5.19pm to 5.25pm for a division in the House.
Q75 Geraldine Smith: I understand there were seven indicative bids for QinetiQ, am I right in assuming that they would all have incurred significant costs in preparing the bids?
Mr Jeffrey: Yes, they would have done.
Q76 Geraldine Smith: Was it made clear to them that they would not get those costs reimbursed?
Mr Jeffrey: Yes, I believe it was.
Q77 Geraldine Smith: So why did Carlyle get their costs reimbursed? What was different about them?
Mr Jeffrey: As I said earlier, it is quite common in transactions of this kind for bid costs to fall to the company. It was certainly part of the Carlyle bid and it was taken into account in assessing the Carlyle bid.
Q78 Geraldine Smith: The costs would fall to whom?
Mr Jeffrey: In the end to the company, as was discussed earlier.
Mr Woolley: To QinetiQ.
Q79 Geraldine Smith: But why? They were going to bid anyway, why just give £16 million away when you do not have to?
Mr Jeffrey: The bid which Carlyle made assumed that the costs of the bid would in the end fall to the company. That is also true of the bid which Permira made. If it had not had that aspect to it then it would have reduced the ultimate price. As I said earlier, it is swings and roundabouts.
Q80 Geraldine Smith: £16 million seems an awful lot of money to prepare a bid. I think most people would think it really is a lot of money. What checks were made to make sure that those costs were validated, that they were incurred? Have you got a breakdown of them and can we see that?
Mr Jeffrey: I imagine that we can provide the Committee with a note on that. I am sure that these costs were properly audited and checked, but in detail I am not familiar with the process that was gone through.3
Mr Schofield: I have three points to make. One is that the audit committee of QinetiQ Holdings Limited would have audited all of the costs. The second point to make is that it is a fairly standard process, as paragraph 2.34 says, in a private equity deal for the new company that takes the business forward to pick up the costs of the successful bidder. The third point to make is, as you say, all of the bidders incurred significant costs but those costs increase as the process goes through and at the very end the short-listed bidders are incurring very significant costs in full due diligence of the business, and that is legal due diligence and financial due diligence.
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