Q21 Chair: Well, the cash flow is the return.
Q22 Matthew Hancock: I want to bring you back to the question of analysing whether public procurement or PFI is the best route, and you said that you do make a decision and you also retain in your contracts the ability to go back to a straight, old-fashioned public-procurement route in housing. Is that correct?
Sir Bob Kerslake: Absolutely. What I was trying to say is that we do a value-for-money test at each key stage of the project, so at the stage where we go from endorsement to procurement, we do a test, and we do it at the stage when we've gone through procurement and we're about to go into contract.
Q23 Matthew Hancock: Do you then look back to see, of all of the contracts that you have done, how the risk has gone? Because, of course, some lose, but you can look at the average to see how well you're doing in terms of driving the appropriate margins.
Sir Bob Kerslake: We have good benchmarking data about how we've done from each of the schemes, so we've accumulated a database that tells us whether or not the scheme still represents good value for money for what it achieves. What I would say is that, when we're making that judgment about VFM, we're very interested in what the scheme is going to deliver. So, it may still be quite high cost, because of the nature of the task for that scheme. A particular feature of housing is the costs vary enormously between schemes. The key test for us is: how does it compare with a typical scheme that is of a similar nature, and does PFI represent good value for money for that scheme? And we can do that.
Q24 Matthew Hancock: So, in health, do you have the same checks?
Peter Coates: Yes. We're clearly not processing any PFI schemes during procurement or appraisal of procurements now, but at the time we kept a running tally of risk and reward in our appraisals, and we always updated those contemporaneously to what had happened in the past.
Q25 Matthew Hancock: Yes, and when you decided that you wanted a new hospital, did you do a test of the relative value of the procurement through PFI or straight public-sector procurement?
Peter Coates: Yes, there's always a public-sector comparator, but it would be wrong of me to suggest that there was money in the back pocket to take it forward if that-
Q26 Matthew Hancock: Right, so this is my next question, which is that you said at some point earlier that it was the same cost, whether PFI or public procurement.
Peter Coates: I think what I said was, in the round, the public purse was no better or worse off through using PFI than public procurement.
Q27 Matthew Hancock: So, PFI has left us with much more constrained contracts in terms of delivery, both in terms of the services available at any one point and the ability for the public sector to drive value for money in the future, because it doesn't get the gains; also, we're constricted to 30 years for every project and no flexibility there, yet you haven't got any savings in cost.
Peter Coates: The gains within a PFI scheme are around the things that can be changed easily, and they are the service costs, such as the cost of catering, the cost of domestics, the cost of portering and suchlike, and they are regularly tested every five years by the trust, either against a benchmarking exercise or a market-testing exercise, to drive value out of it.
Q28 Matthew Hancock: And what about the things that can't be changed very easily?
Peter Coates: Well, of the elements that can't be changed, there's the cost of maintaining the building, which is a 30-year fixed deal, and the cost of build is past; you can't change it.
Q29 Matthew Hancock: No, of course the cost of build is sunk.
Peter Coates: Those are the only elements that there are.
Chair: That's the biggest element.
Q30 Matthew Hancock: Well, of course, but the cost of maintenance is an important element.
Peter Coates: Yes, understood.