Q91 Chair: When they become foundation trusts, at the moment they will be under no obligation to let us at the centre know-will we have the comparative data and information to give us value for money?
Peter Coates: They'll be under no obligation to do that, no.
Q92 Chair: No obligation?
Peter Coates: Under no obligation, no.
Q93 Stella Creasy: So what are you gathering that information for?
Peter Coates: What are we gathering information for?
Stella Creasy: Yes..
Chair: They don't.
Stella Creasy: At the moment it says in the Report that you're currently supporting 76 PFI contracts within the healthcare system. If, in the future, increasingly these decisions are going to be delegated at a local level, both in housing and in hospitals, even if you have data saying there's different ways and different models for managing these contracts, what actual ability will your teams have to say "therefore this is going to be better for you" or "this is going to be better value in this instance"?
Sir Bob Kerslake: The truth about how we work with local government is this: it's in the interests of local authorities to get value for money because if they can save money as part of the process then they benefit from that. I think our role is working with them to say we can act as a point of reference on value for money and testing. It does require them to co-operate in that process, but it's absolutely in their self-interest to do so.
Q94 Stella Creasy: But they're not co-operating in the healthcare system at the moment; you're dependent on them to tell you whether they've got it right, aren't you?
Peter Coates: That is true, but I would characterise it in a slightly different way than saying that they don't talk to us. What we find is that you have to work together with trusts and try to form a partnership with them, which says "We're not from head office to help you, we want to work alongside you," and build a relationship with them in the same way Bob was saying. We do collect certain data when trusts want to talk to us, and we do understand how markets are moving when they want to talk to us. About 60% of the trusts do talk to us, but what I can't say is that every trust tells us everything they do.
Q95 Stella Creasy: So 40% don't talk to you?
Peter Coates: I said 60% do.
Q96 Stella Creasy: Yes, so 40% don't.
Peter Coates: Well, 60% do.
Q97 Ian Swales: I'd just like to pick up on what you're saying about the central resource on housing and the Report on housing, on page 17, says "21 of the 25 projects which have been signed to date have experienced cost increases" above estimates in the business case, "12 of which were over 100%." So in half the projects we got the costs wrong by a factor of two. Further, we now understand that of the PFI housing projects to come 13 will not happen and another 12 are under review. So has this programme actually failed and stalled? How would you assess what's been going on?
Sir Bob Kerslake: I don't think it has failed or stalled actually. What I'd say is that, first of all, those cost increases happened primarily on round 1 and round 2. As I said earlier, since 1996 we've only seen one scheme where we've altered the PFI credit figure during the process. That's not to say there haven't been affordability challenges but we haven't increased the sum of arrears. This has been very much a learning exercise. The second point I'd make is that I think it is fair to say that on round 1 and round 2 there was an issue about capacity but it has been strengthened since then. Whilst we don't have massive teams, I think we have teams of the right size and they have support from the organisations. The third point I'd make is the one I made earlier, that we felt that the capacity that needs to go in to support this process is better placed at the front line, i.e. the local authorities. That's why, where we've put in extra capacity; we've put it into the transactors. The last point is that it is true to say that as a consequence of the Spending Review, a number of schemes have now had to be put on hold until we look at the options on funding. That's directly to do with the resources available as a consequence of the Spending Review and not to do with the management of the programme.
Q98 Ian Swales: One supplementary: if you look the dark green lines on figure 6 on page 22, it would appear that in rounds one and two the Department shot these things through very quickly and actually the projects were being done relatively quickly. Now it would appear you've put a lot more resources in on rounds 3, 4 and 5 because the green lines are longer, although projects are now taking more than two years to get through the process, which sounds a long time. Is that resource that you've put in now under threat and are we likely to go back to the problems of poor assessment again?
Sir Bob Kerslake: Just before I answer that, I said 1996, I meant 2006; we hadn't started in 1996, my apologies for that. I don't think the central resource is threatened. We still have quite a lot of projects to deliver, notwithstanding the fact that the round 6 schemes-as it principally is-are now not in a position where we can confirm funding. So we don't intend to scale back our capacity in the central teams to move this forward as a consequence of that decision. What I was trying to say was that the round 6 schemes being put on hold is not a question of capacity, it's a question of resources available after the Spending Review.
Q99 Ian Swales: How would you react to this claim on this chart, figure 6, if you just cast your eye down it and look at the pattern, we're just taking longer and longer now to actually approve and get these things done. In rounds 1 and 2 it was a lot quicker; now we're delaying two, three, in one case, six years to get a scheme done.
Sir Bob Kerslake: I don't think it is taking longer. Some of the differences in the lengths of time are to do with the difference between the HRA schemes, which were essentially refurbishment, and the new build schemes. They've taken different times. The principal causes of delay in the later rounds of the schemes have been down to two things: not down to capacity or expertise but to do with affordability on both capital and revenue. The capital affordability issue has been significantly influenced by the credit crunch and therefore the ability to cross-subsidise from sales. That's meant that schemes have had to look again at their affordability. Manchester Collyhurst is a good example of that.
Q100 Chair: Do you mean because interest rates are higher, it's no longer value for money?
Sir Bob Kerslake: The affordability question has come in two ways really. One is that the financing costs have been higher, and secondly most of the schemes in rounds 3, 4 and 5, had assumptions about cross-subsidies from sales, so they had an element of sales in them.
Chair: Right. Okay.
Sir Bob Kerslake: So that bit has been put in question, so a number of the schemes have had to completely recalibrate the affordability. The second one, which bears on some of your previous discussion, is that there've been affordable issues on the operating revenue element and that's why we introduced the ability in subsequent rounds to have it done in-house, if you couldn't make it affordable.