Q61 Nigel Griffiths: You are making an exaggerated sweeping statement that the Treasury knows best. I am not suggesting the Treasury knows best: I am suggesting that it would be very good if there were a pool of contract managers. Forget "knows best on everything else". I would hope you do know best on this.
Mr Kingman: If I may, there may be, for example, a small PFI project where actually they do not need a full-time contract manager. I do not know whether that is justified or not. It is a reasonable judgment for someone to make. Our role is to say that it is a very good idea to have a full-time contract manager and you have to have a good reason if you want to do something different.
Q62 Nigel Griffiths: You have an operational taskforce. Why did it take half a decade of PFI to set that up?
Mr Stewart: We set it up at what we thought was the most appropriate time when there was some operational experience. That is not to say no support was available before then. We were providing ongoing support: we just formalised that and set up a formal OTF in March 2006.
Q63 Mr Williams: Only a couple of quick points. We are told that competitive tendering has not always being undertaken where it would have been possible. Why is that? Are they advised they should undertake competitive tendering or not?
Mr Kingman: They are very strongly advised that they should and we have a very strong presumption in favour of competition. There are three big projects where this did not happen. Two of them were prisons and the procuring authority took a judgment that operationally they could get the existing contractor to manage the risk within the prison context much better than they could getting an outside contractor to do it. Then they benchmarked that price against what they could get and they made a judgment that that was the right thing to do. I certainly would not exclude the possibility that that is a reasonable judgment for a procuring authority to make, but it should absolutely go through very clearly why it is not having competition, whether it has a good value for money reason for not having a competition.
Q64 Mr Williams: I see new guidance has been issued in 2007. PFI has been around since 1992. Why has it taken so long to produce new guidance?
Mr Kingman: We continually improve the guidance and there is a sort of archaeology of bits of guidance that we have issued over the years which I hope has continued to improve, learning the lessons as we learned them. PFI has in some form been around since 1992 and the great bulk of PFI projects really started coming on stream at the beginning of this decade.
Q65MrWilliams: So what were the principal lessons the new guidance was intended to address?
Mr McKechnie: The standardisation of PFI contracts has been around for some time. The first one was issued in 1999 and it was version four that was issued in 2007. The two main improvements, with respect to the operational phase, were that it dealt with management fees, which have already come up in discussion, because they were also becoming an increasing problem over the previous years. As James mentioned earlier, it made a distinction between how to handle small changes, medium changes and large changes. The concern had been until then that some of the small changes were being handled in somewhat too bureaucratic a way and it was much more sensible to streamline that.
Mr Williams: Following on the point Nigel has been dealing with, the fact that a third of the hospitals and one in six schools do not have enough staff to manage their contracts properly, I am as bewildered as Nigel was, as to why you tolerated such a situation. How long have you been aware of the scale of this failure?
Q66 Chairman: I am amazed Mr Kingman that you do not know the answer. You have had to turn to somebody who has been imported from the private sector. I have to say Mr Kingman I have found your whole attitude during this hearing arrogant and lackadaisical and I hope in the remaining few minutes you will try to do better and try to take this Committee more seriously.
Mr Kingman: I am sorry Chairman; I certainly do take this Committee seriously.
Q67 Chairman: You have been asked a direct question and you can perhaps now give us the courtesy of answering it. It says in your biography that you are responsible for £600 billion of public money. Right, well let us now have some answers.
Mr Kingman: I am afraid I do not know at what time the Treasury has been aware of this.
Q68 Mr Williams: Do you mean this came as a surprise to you when the National Audit Office mentioned it?
Mr McKechnie: It did not come as a surprise. We knew that some projects were under-resourced; we have known that for some time.
Q69 Mr Williams: So what did you do about it?
Mr McKechnie: We have done things such as set up the operational taskforce and we have encouraged projects to hire more staff. It is not just about numbers, it is also about getting the right skills and that has to do with the training programmes that have been run by the operational taskforce and indeed the NAO itself has run training programmes.
Q70 Mr Williams: In dealing with setting up a PFI contract, the costs that you incur in relation to the supplier are only part of the costs, are they not? There is the cost that you need to do just what is not being done, to monitor it. Is that cost allowed for anywhere, is financial provision made for adequate supervision?
Mr Kingman: The Treasury is not resourced to monitor every PFI project and we do not seek to monitor every PFI project.