Q1 Chairman: You are very welcome to the Committee. Mr Kingman, would you like to look at paragraph 2.4 on page 13 of the Comptroller and Auditor General's Report? You will see there that there is a criticism that about 30% of large changes worth £84 million had not been competed for, even though they might have been. Why is that?
Mr Kingman: I believe it is the case that the great bulk of the 27% described here was accounted for by three very large projects. We operate a very strong presumption in favour of competition but there are sometimes reasons why procuring authorities can legitimately decide not to compete things. In this case there were two prison projects and one hospital project. In those three cases, there were reasons that were thought by the procuring authorities to be good reasons not to compete.
Q2 Chairman: Is this a problem to do with existing projects? Would new projects not have this kind of difficulty? Would you be more on the ball with new projects?
Mr Kingman: The principle is the same for any project, that is there is a strong presumption in favour of competition, but there may sometimes be legitimate reasons why a project is not competed. In those cases we would certainly very strongly expect the project to be compared with a public sector comparator. We would also expect prices to be benchmarked.
Q3 Chairman: Can we look at paragraph 2.13 and figure 9? This has received considerable publicity in the press and one can understand why but there is a serious point behind it. If you look at figure 9, you can see the cost of comparable jobs carried out in 2006 often varied substantially across and within projects; supplying and fitting an electrical socket, for instance can vary from £30 to £302. There is clearly something wrong with your benchmarking, is there not?
Mr Kingman: I think there is a striking degree of variation but there is going to be variation. My understanding is that, if one looks for example at the most expensive socket here, which was at the top of a 30-foot high ceiling in a school requiring scaffolding and all sorts of things, that will sometimes be the case. From our point of view, we would certainly want to see procuring authorities procuring these things cheaply.
Q4 Chairman: But it is an extraordinary variation and even if you have to go to the top of a very high ceiling, it seems a lot of money to pay, does it not? What strikes me about this whole Report-and this is a general comment but you can reply to it-is that a great deal of time and effort goes into drawing up these contracts originally, but sometimes money leaks away because you do not have the staff to keep an eye on these projects. Is that a fair criticism? You take your eye off the ball in other words.
Mr Kingman: That can be an issue and it is certainly something that procuring authorities need to be careful about when they go into a PFI deal. A lot of people have a sense that PFI is inflexible and it is interesting that when the NAO went in to look at this, their overall conclusion was that PFI can be flexible, that these deals are responsive but there are also reasons to be careful about value for money and we agree with the Report on that completely.
Q5 Chairman: Because the contractors have always got their eye on the ball have they not? They are always going to be looking at maximising their profit, so the public sector has to be as good as they are all the way through the contract.
Mr Kingman: Yes.
Q6 Chairman: Are you instilling that ethos across the public sector? You cannot just put all this time and effort in at the beginning and then walk away from a project and expect it to look after itself.
Mr Kingman: I do entirely agree with that, though I would add that it is just as much of an issue in relation to a conventional procurement, where we have very major challenges, to raise the public sector's game as a procuring authority. PFI is particularly complex, but we have challenges across the piece.
Q7 Chairman: This point is highlighted in paragraph 3.8 where we see that over 15% of PFI projects do not have a full-time contract manager. It is not surprising that these contracts get themselves into a position where they cannot be well managed, if they do not have a full-time contract manager, given the amount of money often involved.
Mr Kingman: I would certainly want to see PFI contracting authorities having the capability. I do not know whether it is necessary in every case to have a full-time contract manager, maybe one of my colleagues may want to comment on that.
Q8 Chairman: It seems to be just good practice and something that perhaps you would want to insist on in the future in all large projects.
Mr Stewart: The guidance is clear that people should have a full-time contract manager.
Q9 Chairman: So why are they not doing it then?
Mr Stewart: It is ultimately the decision of procurement bodies as to how they contract manage.
Q10 Chairman: But it is all public money. As a result of this hearing, what steps are you going to take to try to improve your hands-on management in the public sector of these projects?
Mr Kingman: As James says, we have guidance and that guidance is clear. We do not have the power to buy all these things ourselves nor would that be sensible. We are dependent on the decisions of procuring authorities and local authorities but we are doing a lot to try to raise the standard of procurement expertise across Government, we are doing procurement capability reviews of every government department, we have a new Head of OGC who is bringing a new energy to this drive. It is very serious issue for us.