Q141 Mr Bacon: It would have got above zero, almost certainly.
Graham Dalton: I don't know which side of zero it would have got. The other important thing we were doing was assessing the different benefits.
Q142 Joseph Johnson: Can we just clarify that point? Ms Clarke has said that the figure would fall by more than half on a net present value basis. If someone's got to calculate it, we can do it easily. Let's say for the sake of argument, that the £193 million becomes £80 million or £90 million-let's take half.
Mr Bacon: I will just give you an example. The cash cost of all PFI contracts in the United Kingdom is £210 billion, and the net present value of that is in the region of £117 billion-the Treasury give us evidence on this recently. When the cash cost was £191 billion, the net present value was around £91 billion, so there is a big chunk you have to lop off. You're probably right that it is at least half, if not more than half.
Joseph Johnson: If, as you say, it was half, that minus £53 million becomes plus £40 million.
Mr Bacon: That's quite reasonable, isn't it? If you knock £100 million or so off the £193 million, you're going well the other way; you're suddenly into a net saving, aren't you?
Graham Dalton: That is to buy a different solution.
Mr Bacon: But you might have considered buying a different solution if the numbers had been accurate.
Chair: You're advice to the then Secretary of State, one would hope, would have been different.
Amyas Morse: I know you weren't there at the time, but it is worth just commenting on this for the Committee. As I look at all these numbers, the hard number in this list is £330 million. Then there are increasingly a lot of non-hard numbers-estimation, broad-judgment numbers. If you look at the note on the right of the minus £90 million, it says, "The Agency assumed"-assumed-"that cancellation of the M25 widening contract would lead to market uncertainty and an assumed increase in financing". These are best estimates. You can't really describe these as more than finger-in-the-air numbers. Is that fair? I am not saying that they are not relevant at all-do speak up if anyone has anything to say by the way-but what they are essentially saying is, "We think there is an effect here and we need to find some way of expressing what that effect might be. Here is a broad way of estimating it." You could explain the calculation, but you couldn't regard it as provable, could you? Is that a fair comment?
Ginny Clarke: Some of the numbers are very hard. On the £330 million, we have evidence and we have talked about that. You are absolutely right: some of the others are about people's judgment and people making the point, as the Chair said, about the view of what the market would do in response to a cancellation of one of the biggest PFIs. I accept that that is a judgment. You are right: it is a mixture of the two.
Q143 Stephen Barclay: The £140 million of additional cost to other projects is questionable as well.
Ginny Clarke: Yes. That is where, potentially, there is more a judgment than-
Q144 Chair: So, did you follow the PFI route because you were told to by the Treasury?
Ginny Clarke: No. Are you talking about the original decision?
Q145 Chair: This one. Our view, as you can quite clearly see, is that this was a lousy contract. It became even more lousy when the credit crunch hit. So why on earth did you enter into it? Why on earth did you give advice to the then Secretary of State that this was a sensible thing to do? I am almost giving you a let-out clause here: did you go down this route because the Treasury instructed you to?
Mr Bacon: You are nodding.
Ginny Clarke: No. I said no.
Mr Bacon: I just wanted to be clear.
Q146 Jackie Doyle-Price: What assessment did you make? When the Treasury came to talk to us about PFI deals, one of the things that it told us was that the Department had made money available in the event that a PFI deal was not forthcoming. Obviously, given the market situation at the time, that was a very real concern. So what judgments did you make to decide that PFI was the appropriate funding vehicle on this occasion?
Graham Dalton: The Department made money available to co-fund if the funding competition was not fully subscribed. That was effectively to say to the market, "We are serious about going ahead with this," and to effectively break a stand-off to see whether anyone was going to go into it. That was what that money was for. That money was not offered up to say, "Let's do it in a conventional way instead." The assessment about the value for money was made right back in 2005 when the procurement route was selected, and the test was, as figure 8 shows, immediately before contract signature.
Q147 Jackie Doyle-Price: In terms of the additional cost that the delay caused to the PFI contract, which was £660 million, what are the long-term consequences of that for the Department's ability to deliver other projects?
Graham Dalton: Figure 8 tells us-the additional cost is the blue on the graph-that, on the cost of paying for the widening and operating and maintaining, we believe, at the very best, we could have got the same through conventional procurement.
Q148 Chair: But your basis for calculation was so way out that I do not have any confidence in your calculation. That is the problem. Because you were so way out on the figures, and the way in which you assessed costs was so wrong, particularly for maintenance, what confidence can we have?
Graham Dalton: Our incorrect estimate was on the basis of what a PFI contractor was going to give. We repeatedly come close on estimates for our maintenance contracts as we let them on the five and seven-year terms.
Q149 Mrs McGuire: May I ask, given the exchange we have just had, whether you accept or not the NAO's comments in paragraph 3.10 on page 31 that the figures in figure 10 were not a "sufficiently thorough assessment of the savings"? We need to have a sense of whether or not you accept that assessment of this analysis? There is a great deal of concern around the table that these figures, by any objective standard, don't stack up. It may be a judgment, Ms Clarke, but, robustly, they do not pass muster.
Ginny Clarke: My view is that, at the time we were doing this in 2008, it felt very real and it felt, based on the evidence that we had, that that was effectively-
Mrs McGuire: Can you move us on from 2008 to today? Given the exchanges that we have just had, do you or do you not accept the NAO's comment in paragraph 3.10 on page 31 that this was not a sufficiently robust set of figures on which to make an analysis?
Ginny Clarke: I believed that it was robust at the time, and what we haven't looked at here is the benefits side, at what this was buying. The presentation, in informing others and recommending it, was not just about the cost but about what it was buying. That's the other side of the equation.
Q150 Mrs McGuire: Can I put it another way, then? Although this Committee gets the reputation for being a bit of an attack-dog Committee, it also wants to encourage Departments to learn lessons.
Ginny Clarke: I accept that.