Q71 Chair: So it is not best value; it is just policy.
Michael Hurn: We would argue that there are very strong incentives in the privately financed funding structure to achieve good value for money for this programme. It is all about transferring risk: performance risk and acceptance risk. Remember, this is a very high frequency train service through London. To give you a feel for it, there is a train every 2.5 minutes going through the core section, both north and south. We want to have the best-performance train. If that train does not work properly or breaks down, it will cause significant disruption to the network because of its frequency. So having the performance regime within the contract structure delivers that, and a private finance structure is part of that. It was policy back in 2008. Clearly, we structured the invitation to tender and the evaluation criteria to achieve best value for money.
Q72 Meg Hillier: We know the historical background. What are the advantages and disadvantages to the taxpayer of this approach and who really bears the risk? You are sitting here before us today, on the model that we have now, with the winning tender being finalised in three days' time.
Michael Hurn: In a way, the question is-dare I say it?-a bit hypothetical. That is the structure. That is what was set out. That was the policy at the time.
Q73 Meg Hillier: So who bears the risk?
Michael Hurn: Siemens, in accordance with the original proposition, are bearing very significant risks for this transaction, both during the construction phase of the trains themselves, the acceptance phase, and finally the long-term maintenance. There are a whole series of performance-
Q74 Meg Hillier: Can you explain the maintenance clause, because that is quite interesting?
Michael Hurn: Again I need to explain the concepts rather than the financial elements. There is a performance regime such that if the train is not maintained to acceptable standards, there are penalties from a maintenance payment that the train operator pays to Siemens as a sort of daily maintenance charge. For example, if the toilets are not working, if the interior is not done to the right satisfaction or if the passenger information system is not working correctly-those are just examples to give you a flavour-there are deductions in that maintenance payment. Therefore, Siemens are strongly incentivised to maintain that train.
Also, importantly, it is worth understanding that the whole of our assessment of this project has been on a whole-life cost arrangement that takes into account the construction cost as well as the long-term maintenance cost, and even the reductions in damage to a track by a lighter train, or even less electricity charge generation as a result of it being a lighter train. All those are taken into account as part of the evaluation criteria. They were published as part of the invitation to tender. So we take a whole-life, long-term, 30-year view of the benefits of this project, rather than just thinking about purely the train manufacturing or a maintenance proposal separately. There has been a whole-industry approach to this, as I mentioned earlier.
Q75 Chair: Did you compare it with what you are doing for Crossrail? What if you had bought it up front without PFI-ing it? I know it is a bit apples and pears, but I have a cost here per carriage. What is this cost per carriage? Somebody did a calculation for me that came out at £1.25 million per carriage.
Michael Hurn: It is difficult for me to comment on the numbers. Apologies if I come across as obstructive-I do not mean to be-but I cannot comment on the commercial elements of the transaction.
Q76 Chair: We will have to come back to it. I hear what you say, but see whether you can answer this. Everything else that we have looked at with PFI involves a cost over time. I accept that there are whole-life costs, but the costs over time are so enormous they outweigh, from the taxpayers' point of view, the benefit of not having to raise the cash up front to buy the product. What I am really asking is whether, when you did your comparison analysis, you looked at how much it would cost to buy up front, and can you give us any indication of the differences?
Michael Hurn: In 2008, the policy was not-
Q77 Chair: I understand. That is why I said it is driven by policy and not value for money. I understand that. We have had it said before that the policy was everything by PFI, so you would not have the up-front costs. What we uncovered when looking at really boring, but really important, documents such as the whole of Government accounts, is that there is a huge legacy for future taxpayers.
Michael Hurn: I am probably not answering your question fully, but the comparator we had was actually from the private sector and was a traditional rolling stock transaction and lease structure, based on a more conventional rolling stock company lease. Our whole point was to move away from that and have greater risk transferred for at least some of the components I mentioned earlier.
Q78 Chair: Is it cheaper?
Michael Hurn: It comes back to what type of train service you want to operate. This is a very unique service in terms of the metro frequency I mentioned earlier. We are looking not just at train cost, but at the whole-life cost over and above the train. Even if you ignore all the maintenance, we are taking the project as a whole. For that reason, we wanted to have the best-performing train in its class and to have an incentive for some further risk transfer about performance, because the concept-
Q79 Chair: Why did the Mayor of London breathe a sigh of relief when he was told that he could buy the trains for Crossrail up front?
Philip Rutnam: Crossrail is a different proposition again. Just to be clear, the trains are being procured by Crossrail Ltd, not by the Government or by the Mayor. Transport for London and the Department for Transport are joint sponsors of Crossrail Ltd, so we had a certain role in approving key decisions, but the procurement is by Crossrail Ltd and is currently in progress, so I will not say too much about it. The Government's reasons for supporting or agreeing to the request to change the way that Crossrail went about buying its trains are essentially related to minimising the risk of delay associated with the back end of the project. Critically, no other trains will go through Crossrail's tunnels. The trains are unique and essential to the operation of that service. In Thameslink's case, the current trains, which are not ideal, can continue to operate, but if we want the enhanced service, we need to invest in the new trains. Crossrail has a different set of circumstances, particularly connected with the fact that there are no other trains that could deploy that service.
Q80 Chair: Does that mean there is no competition?
Philip Rutnam: No, there are a number of different potential builders of the trains, but we need new trains in order to operate any service through the Crossrail tunnels.
Chair: So you could not have delay.
Philip Rutnam: We cannot have the risk of having the tunnels but no trains. It was about managing that risk down.
Chair: We will return to this when you can release to us the details of the contract.