109. If I may, Chairman, because I am afraid, I have to apologise, I have to leave in a moment. Mr Busby, when I was asking you earlier about these ones that had deductions, you gave me an answer which I was surprised about. You may remember at the time I said I would look up the reference and come back to it. I have now been helped to find the reference which is paragraph 1.22 on page 11 where the report says that "... 58 per cent of authorities who had an agreed performance and performance deduction review process told us they had made performance deductions in accordance with those processes. 25 authorities told us that they had made deductions totalling £10.3 million". As I understand it, that is when the contractor's performance-as it says in the very first sentence there-falls below certain contractually defined standards. In other words, it is something that is in the contract. When a ward goes into maintenance for a period you do not get the payment during that period, that is in the contract. What we are talking about here are deductions for when the performance falls below certain standards. Now it seems to me if that is true and if this amount of money is being removed from your contractors, given that-as I mentioned earlier, I would hope the contractors were basing their tenders on the lowest possible price to get anything like a reasonable rate of return-then presumably in the end all these 25 contractors had failed to get a reasonable rate of return and I would have expected that to be pretty worrying from your point of view.
(Mr Busby) I can only repeat what I said earlier. As far as I am concerned, the ones I am aware of, the deductions were made in accordance with the processes which are contained within the contract. There are two fundamental ways on which a contractor is paid: availability of the service is clearly one of them. In the event that there is a problem with that availability, and that can come in all sorts of forms, then a deduction will be made.
110. Are you saying-let me get this quite straight-that in your view the contractors would have taken into account the likelihood of this level of deductions before they fixed the tender price to give them a reasonable rate of return?
(Mr Busby) I think they probably would, yes, because it is totally unreasonable to expect every ward to be available for 30 years 100 per cent of the time.
111. Can I just ask the C&AG, is that how you understand the PFI is supposed to work or perhaps Mr Gershon would like to answer this? Is that what you understand, they are expected to set up their contract prices with an allowance for the fact that they probably will fail to do what they said they will do in the contract?
(Mr Gershon) Can I put it this way. When I was on the other side and we were bidding for a PFI contract, you would make probably an allowance that certainly in the period immediately following what you describe as the start up phase of the contract, you would probably make some contingency against meeting the contractually defined levels.
Chairman: I am going to stop you there.
Mr Rendel: That is fine. I am appalled, but that is fine.