Q71 Chair: I think we would be interested if you could provide the National Audit Office with a note about the amount of money being spent on consultants on your reports and about the basis on which those consultants were employed. We will come back to consultants because there are a lot of issues around consultancy. But it sounds like a heck of a lot of money was spent.
Q72 Stephen Barclay: Could we include in that note legal fees for all projects, temporary services and any other consultant costs that fall outside management costs? I am just minded of the hearing we had with Ofcom, where it suddenly appeared that there was potentially a general contingency. There was £30 million, which Richard was looking at in terms of costs just last year, so it would be quite interesting to get the breakdown.
Amyas Morse: So we understand each other, and for clarity, I am happy that we do that, but we are asking about projects that we'll need the Department to supply information on, not the Highways Agency, primarily. These were projects let by the Department. I am not saying that's wrong; I'm just making sure we understand each other.
Q73 Chair: It doesn't matter if they'd managed to get another agency to pay for the consultants. We need to know, because it is still taxpayers' money.
Amyas Morse: Okay. Absolutely. We understand that.
Q74 Chair: In terms of lessons learned, one of the things I find most shocking is that you based the value for money of going down the PFI route on what is, at best, flawed data; at worst, this is almost an issue of maladministration, in terms of using out-of-date calculations and not challenging the maintenance cost. Perhaps you can turn to pages 16 and 17 and figure 3. How do you justify that?
Graham Dalton: Are you talking about paragraph 1.19?
Chair: Yes.
Graham Dalton: First, you have to use the data that are available. If contracts hadn't been used or let, there was no data coming from them.
Chair: I'm really sorry, but I can't hear what you're saying because of the acoustics in the room.
Graham Dalton: First, you have to deal with the data available from real contracts. We had data available from previous widening schemes. Paragraph 1.19 talks about data from 1992-94. The schemes that were done after that were design, build, finance, operate schemes-PFI contracts. They were not directly comparable, because we didn't have the disaggregation of costs from those early PFI contracts.
Q75 Chair: You were using data that were 13 years out of date?
Graham Dalton: From contracts from 1992-94, three of which were M25 widening schemes, so they were highly comparable. There are published indices that can be used right through construction, which actually track how construction cost prices have tracked over time. Those are the estimates we used to build the widening estimates. Indeed, once the bids were in, our estimate of the cost of the widening was pretty close to where the bid cost came in for widening.
As to the estimates and figures we then used for operations and maintenance, when we first started, we had the reference. Unlike with a new-build PFI, if you're going to build a facility and then operate it, and it hasn't been there, you haven't got a direct comparison. We had already been maintaining and renewing parts of the M25 for a number of years, so we had a term maintenance contract in place-we called it our area 5 contract-and we knew what it actually cost. That was our reference point for bids. Then we had to make an estimate of how much better than that, or how much more efficient, a PFI contractor would be on maintenance.
Q76 Chair: It is quite astounding to read in this report that your costs were between 27%, 40% or 80% higher than all the bids. They were completely out of kilter. Either you were spending far too much on your previous contracts, or your estimates were wrong. For your estimates to be so wrong, relative to the bids, something must have been deeply wrong. Can't you accept that?
Graham Dalton: Our estimates and the bids as they came in were about the same: about £1 billion, for the widening of those first two sections. We did a public sector comparator-it wasn't an estimate beforehand-first to judge whether to follow the PFI route, and that is when we made the estimate of what efficiencies would come through that procurement route. We followed that through and then did what was effectively a shadow bid, using tender assessment, and it estimated higher than the bids that actually came in.
Q77 Joseph Johnson: On the maintenance costs?
Graham Dalton: On the operation and maintenance costs.
Q78 Chair: That was 65% of the PFI contract. I understand the basis on which you did it, but it was so out. What went wrong? It was not just a bit out; it was enormously out.
Graham Dalton: We have not bid one like this. This was down to how competitive the bidders would be.
Chair: Someone showed a complete lack of understanding of both the market and the real costs of doing this maintenance, which is two thirds of the cost of the PFI.
Q79 Joseph Johnson: Presumably, it was the people who were advising the Highways Agency.
Q80 Stephen Barclay: Paragraph 14 of the NAO's report states, "We are concerned about the credibility of the comparison because the Agency had not taken up the earlier opportunity to investigate the difference between the bids and its benchmark cost model. Consequently, the updated comparator, in our opinion, was not a sufficiently robust guide to likely costs under a conventional procurement." That is the NAO's finding.
Graham Dalton: That is the NAO's opinion.
Chair: But the reports are agreed by you.
Amyas Morse: Perhaps it would be fair if I pointed out that the subject of the Highways Agency's understanding of the costs of maintenance isn't a new one. We have had a hearing on this even in the time I have been in this job. The NAO report on the subject states, "The Agency is only now beginning to exploit the good visibility of costs within these contracts, so that it can challenge contractors' costings and establish benchmarks for continuous improvement." Quite honestly, although that report found that you were starting to do that, we didn't find that you had mastery over the costs environment on maintenance. I think that that is a fair summary on where we got to in the hearing. This is not something that we thought up when we were writing this report, as we had a long discussion and a hearing on highways maintenance and produced a report on it, and I recollect that I was sitting in the same seat.