231. It struck me that really we are talking about risk and transfer of risk but at the end of the day if anything goes wrong you are going to bail it out, are you not?
(Mr Gershon) No, I am not.
232. You are not?
(Mr Gershon) No.
233. That is what it says here.
(Mr Gershon) Which one is that?
234. The renegotiation of the PFI for the Royal Armouries Museum in Leeds. The Department for Culture paid £10 million to bail it out. You are not going to let a hospital close, are you?
(Mr Gershon) You made a general statement to which I answered.
235. You answered no.
(Mr Gershon) I answered no to your general statement. Things do go wrong, costs overrun, things like that, which are costs which are picked up by the private sector.
236. The answer was not right, it was not accurate, because there is one which has been bailed out and if my hospital closed you would bail it out. You could not let a hospital close, could you?
(Mr Gershon) I made it very clear that there are some risks which the public sector can never transfer to the private sector. One is the risk that in the ultimate you have to keep providing public service. Let us suppose your hospital closed because the contractor went bust. In that contract, if it followed standardisation, the client will have step-in rights to take over the running of the hospital.
237. That is my point.
(Mr Gershon) You are looking at catastrophic failure.
238. Was that a catastrophic failure?
(Mr Gershon) That was catastrophic but many failures are not catastrophic and the tab is picked up by the private sector. The risk of catastrophic failure can never be transferred to the private sector if there is the provision of public service involved. Whether it is passports, hospitals, whatever, we all have the responsibility to continue to deliver a public service. That is a catastrophic failure which has low probability but very high impact. There are other risks which may have a high probability of occurrence and a lower impact which will be picked up by the private sector.
239. If you had been sitting there three or four years ago and somebody had said that the Royal Armouries would need £10 million to bail it out, you would have said that was a catastrophic failure and it would never happen, would you?
(Mr Gershon) Where there is demand risk involved, which there was in the Royal Armouries, the number of people who would actually come through it, there is no doubt that both the public and the private sector have learned from those sorts of experiences about how much demand risk the private sector can sensibly take in a PFI.