Q11 Mr Touhig: In that case why does it need the NAO to point out to you that the agency's bulk-buying power could have saved the public sector comparator between £4 million and £14 million?
Mr Robertson: This is important and it was offered to us by the NAO from an organisation called Mason, as I recall. I do worry a bit about bulk buying as far as the public sector is concerned. In a way it assumes that I have the budget from government which means I can go out and buy everything at the same time.
Q12 Mr Touhig: Page 27, paragraph 2.32 is pretty specific, is it not? The consultants engaged by the NAO "did, however, note that, for bulk order capital cost items, the Agency might have secured discounts that could have reduced the present value cost of the comparator by between £4 million and £14 million". You have agreed the Report and I take it you accept that?
Mr Robertson: I agree that it might have and that the benefit might have been as much as £14 million, but that would not have changed the conclusion in the simple arithmetic that the public sector comparator-
Q13 Mr Touhig: It would have reduced the difference between the PPP and the public sector comparator, would it not?
Mr Robertson: Absolutely. If we had been able to do the bulk buying, which is one of the things that the flexibility-
Q14 Mr Touhig: Are you suggesting that you could not have done that and so the consultants brought in by the NAO have got it wrong?
Mr Robertson: No.
Q15 Mr Touhig: It is in the Report and you have accepted it.
Mr Robertson: I think it is quite right because it is a speculative "might have reduced it by between £4 million and £14 million". To capture that I would have had to do the bulk buying which meant I would have had to find the money to do it, taking money away from my limited budgets for traffic management overall and investing in that compared with other things that I might have wanted to do. All of the things that we have talked about in the past in terms of the technologies we can bring to bear have very high value for money, so there is no zero price here.
Q16 Mr Touhig: I understand the point you make, but, as the Chairman points out, the cost of this project has gone up nine times since it was first conceived, has it not? It seems to me that the whole reasoning of the agency for choosing PPP over the conventional route is not very robust. As we started the session this afternoon you praised the Report but I cannot see it; it just seems to me that you have not been very robust in saying why you wanted the PPP in the first place.
Mr Robertson: I explained that I had three options. If one leaves aside the option to do it myself on the basis that that is not the organisation we are set up to be, the simple choice is between contracting and PPP. With a scheme like this that is novel, that has come through a meltdown in telecommunications in 2001 and 2002 and where technology advances all the time I think that the public sector has to be very careful about engaging in the sorts of risks involved.
Q17 Mr Touhig: Let us look at the risks. The Report tells us that you factored £85 million into the public sector comparator which was 26% of the non-risk-adjusted figure. From where did that £85 million come, and why was it so high?
Mr Robertson: The £85 million is described by the National Audit Office in appendix 4, and we have agreed that. We are happy to go through the risks that we have allocated in that.
Q18 Mr Touhig: How did you work up to that figure? Why was it such a large figure, because it certainly had a final impact on whether you went the PPP or conventional route?
Mr Robertson: Since Mr David Bradbrook, the project manager, is sitting here I will invite him to give you some perspective on that. However, the risk as a percentage of this project works out at about 26% of the NPV which is not so far away from the sorts of risks we have experienced in the other PFIs we have done. They vary between 7% and 31% for what are largely roads projects of a lower category risk. Therefore, 26% is not unusual for PFIs at least as far as I have seen them.
Q19 Mr Touhig: It is a lot of money. You were against taking the risk and so you went down the PPP route and the cost dramatically escalated. You got into a mess right at the beginning. In 1999 the cost of this project was £90 million and it is now nine times that.
Mr Bradbrook: The cost of the contract went from £40 million to £345 million because the scope of the project changed. It started off as a very simple project to renew life-expired assets and to try lever some revenue off the market. By the time we got out to tender it had moved on from the feasibility study and was addressing our strategic needs and the needs of a 10-year plan that had been published since then including the traffic officer service that had come into being. We now required a network that needed to have far greater levels of resilience, capacity and capability. The reason why the costing increased was that capability and capacity increased.
Q20 Mr Touhig: Did not the costs also increase because you did not foresee the extent to which meeting your very high quality standards meant that the tendering period would double from two to four years to start with? You got off to a pretty ropey start.
Mr Bradbrook: No. We were of the very firm belief that good preparation work upfront, coming up with a set of clear and unambiguous tender documents and contracts, would reduce the costs later on. We were always looking at the whole life costs. Although the consultancy fee increased three times, if you look at the overall cost of the contract from preferred bidder to award there was not one increase; indeed, it went down by £2 million. Even the NAO's own reports published last year said that typically PFI contracts increased by 17% after preferred bidder stage. That work upfront not only stopped the price increasing after preferred bidder stage.