Q31 Matthew Hancock: So, is it a mistake that value can't be driven through that as well?
Peter Coates: One of the things we have been looking at is where we now stand on parts of the PFI contracts that may not have worked as well as we had wanted them to do. The long-term maintenance of the asset is one of the areas that, clearly, is a thing that is locking us into something.
Q32 Matthew Hancock: So, for instance, in Hereford Hospital, would you support them in trying to drive an improved maintenance contract?
Peter Coates: We would support them in trying to do that. Whether it is possible, given the circumstances-
Q33 Matthew Hancock: Sure, of course, you've signed contracts. But then I want to compare that with this other statement that you made earlier that really surprised me, which is that you said, rightly, that, of course, taxpayers' money is taxpayers' money, whether it's delivered through PFI or public procurement, but you then said "but we wouldn't have got the hospitals if it wasn't for PFI". What does that mean?
Peter Coates: Well, my experience-and I've been dealing with public procurement since 1974, when I joined an agency that built buildings-is that there tends to be a very long gestation period about consideration whether we're going to build something or not. The Treasury then considers whether they're going to give capital for that or not and the whole thing becomes rather stop-go and we do not have a process we could guarantee that, if you decide to do something from public capital, in the time it takes you to design a hospital, which is often five to 10 years, it will still be available. The consequence of that is the political and economic cycles change and the Treasury says, "I'm sorry, you can't have that money any more," and it stops.
Q34 Matthew Hancock: And sometimes for good reason.
Peter Coates: I understand, but what I'm saying is that public capital comes and goes, and it can stop developments, but PFI-
Q35 Matthew Hancock: So, if you didn't get any gain in cost, which you've just explained, then how can you still say that you would not have got the hospitals under public procurement? That rather implies that you only got them because PFI had certain advantages to your accounting, but it wasn't on the balance sheet.
Peter Coates: I think we'd have got some hospitals, but not so many.
Chair: All the PFIs are now on balance sheet.
Q36 Matthew Hancock: They are now, yes, but not at the point that the decision was made. So, my concern is that, if it's not appropriate to have a hospital if the cost has got to be on the balance sheet, but it is appropriate if the costs are off the balance sheet, and at the same time you're not getting any better value for all of the constraints that you've talked about in maintenance contract and in the length of the 30-year contract, doesn't the fact that you can therefore do it off balance sheet mean that decisions are taken skewed by these accounting considerations instead of by what is the best public policy outcome, which is what we all care about?
Peter Coates: Yes, which is the argument that balance sheet has driven the decision to use PFI. They could only have chosen PFI because of the balance-sheet treatment. All I can say is that the Secretary of State at the time in 1999-2000 said, "PFI is the only game in town".
Q37 Matthew Hancock: And why did he say that?
Peter Coates: He said it.
Q38 Matthew Hancock: So, you just told me earlier that you did do a public-sector delivery comparator, but now you just told me that PFI was the only game in town. So, if PFI was more expensive than the public-sector comparator, would you have gone ahead with a given hospital?
Peter Coates: In certain cases, the PFI comparator was marginally more expensive than the public sector.
Q39 Matthew Hancock: And you went ahead with it none the less.
Peter Coates: Yes, because how we do these things is you estimate for the next 35 years what you're going to spend on certain outcomes, and once you get beyond five years, you are estimating guesswork, and there's a margin of error.
Q40 Matthew Hancock: Of course. You're telling me that, because you have to build things in the future, therefore you don't take into account the fact that it's more expensive; what you're telling me is that hospitals have been built using a procurement process that was more expensive than your best estimate of procuring it through the public sector. That's correct, isn't it, in some cases?
Peter Coates: The only case I can remember was a 1% difference over 60 years.