Q21 Mr Bacon: If there is a threshold, which I think is 40% at the moment, would you just move the goalposts slightly? At the end of the day, it is only an accounting change, is it not?
Mr Kingman: Firstly, what happens to the fiscal position depends on what the ONS conclude. Secondly, the Chancellor would have to decide at the time anything that relates to the fiscal rules.
Q22 Mr Bacon: You are being admirably cautious Mr Kingman.
Mr Kingman: Indeed; it is my job.
Q23 Mr Bacon: I would like to ask you about competition and in case example 6 on page 21, this was the East Riding schools, a local authority project, it points out: "As the project developed, it became apparent that there were opportunities to enhance value for money outcomes where the work was being sub-contracted. The Authority therefore sought to introduce more transparent competition where changes are sub-contracted, if necessary using contractors from the SPV's contract partners or those from the Local Authority's approved contractor list. The SPV has now agreed to follow the Local Authority's recently revised competition requirements". Why do all projects not follow that example which seems to be rather a good one?
Mr Stewart: As a general point, it is interesting to say: "Where are the incentives both for the public sector and the private sector to change what is extant in existing contracts"? Slightly surprisingly, you may be surprised to hear that the private sector is sometimes as incentivised to change some of the variation protocols as the public sector and particularly that is true on small changes. On small changes, if they are not handled properly, it becomes a complete pain in the neck for both private sector and the public sector. What we have seen is a willingness from both sides to put in place variation protocols. As you probably know, we put in place recent guidance, but part of that guidance is not actually saying that no-one has put in place a variation protocol for the last five years because that is just not true. People have put in place new variation protocols and what we are trying to do now is to get a standard variation protocol right across the piece. We would support what is said in the East Riding case as good practice and in fact it is consistent with the guidance that has come out.
Q24 Mr Bacon: I am quite surprised to hear you say that the private sector have been supportive of those changes as well. Figure 11 is a description of how the private sector make extra money out of changes and how they justify extra charges. They say, for example, that they have to take account of the cost of tendering out the work to the sub-contractors, although as the NAO points out, that is done for the vast majority of cases. They say they have to consider the change and make sure it can be implemented under the project agreement, although in practice that is hardly ever an issue. They say they need to evaluate lifecycle and risk implications, but actually in practice few special purpose vehicles need to consider it for small works and they need to bear in mind the cost of re-running the financial model, although they should be re-running the financial model anyway. The point is that for each of these things they have been making money, between 5% and 25% on top of all the other charges.
Mr Stewart: What the guidance does now, is distinguish between small changes, medium-sized changes and large-sized changes. For instance, for small changes it is quite explicit that no-one should be even considering re-running a financial model. The guidance does differentiate as to how both the public sector and the private sector should behave for small, medium and large. I would say your comments are definitely true for the large changes, perhaps true for some of the medium-sized changes but not true for the small changes where a different procedure is needed. What we have talked about in terms of the small changes, is agreeing a schedule of rates between the public sector and the private sector and that that schedule of rates should be revisited at the beginning of each year. Even if you have a schedule of rates, you have to bear in mind that some of these changes will fall outside what is defined in that schedule and therefore a discussion has to take place.
Q25 Mr Bacon: Could I ask for your comments on a quote from a focus group on page 22? At the top there is says: "Early on we had a proper project director, we had commissioning teams, a commissioning nurse-we had a full range of people. And, as soon as the contract was at the operational stage, the director of facilities disappeared, they all disappeared". Going back to the Chairman's point about not having full-time contract directors, my sense is you have a group of people, mostly in London, mostly working either for investment banks or law firms or accounting firms or, like yourself, for a sort of hybrid or for the Treasury, who all know each other, so a fairly small world, who are in many cases extremely highly paid and whose great interest is in the next deal. Once it is done then you get on to the next deal and there is less interest in the ongoing operational contract side. I can see someone behind you nodding; the last time I said that the person rapidly stopped and he has as well. It is interesting to see that nod because it just reinforces my suspicion that what you have is this group of people going round drinking each other's champagne in London and some poor soul in a prison up in the north of England is trying to run a contract without enough help, without enough guidance and without enough support.
Mr Stewart: I suppose my only response to that can be that we did take the initiative and, under the auspices of the Treasury, set up the operational taskforce in March 2006. For example, to deal with the regional point, we have run nine regional workshops right around the country and that is right across the UK, inviting all the contract managers from projects to attend those workshops. We have probably had between 40 and 50 people at each of those workshops. We have now followed that up with training courses which are running at around one a month where we have got, on average, 20 to 25 people coming to those training courses. So we have made an effort to go out and talk to people. I checked the stats this morning on our helpdesk and we have had 461 calls and, as of today, that represents 206 different public sector organisations who have contacted our helpdesk.
Q26 Mr Bacon: Phoning you up and saying: "Help. What do I do here?".
Mr Stewart: Yes, that is what we are here for.
Q27 Mr Bacon: I am glad you have a helpdesk. You are not all too busy signing off new deals then?
Mr Stewart: No.
Q28 Mr Bacon: I would like to ask Mr McKechnie a question. You are Head of PFI Policy. I have always been slightly worried about the fact that the Head of PFI Policy in the Treasury always appears to be a secondee. I take it your predecessor, Mr Abadie, has gone back to PricewaterhouseCoopers, has he?
Mr McKechnie: Yes, he has.
Q29 Mr Bacon: And you are from Deloitte, is that right? Is your salary paid by Deloitte?
Mr McKechnie: I am a partner of Deloitte and I am paid by them.
Q30 Mr Bacon: You continue to be paid by Deloitte so your being inside the Treasury is not a burden on the public purse, so to speak?
Mr Kingman: There is a contractual arrangement between us and Deloitte, as you would expect. I am surprised that you are surprised. From my point of view it is absolutely vital to have in the Treasury people who have done this and really know where the bodies are buried.