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Mr. Simon Hughes (Southwark and Bermondsey): This is a continuation of the debate that we had in Committee. I believe that the argument is flawed when the risk can be limited by contract and the liability under the contract can fall entirely on the contractor. The Minister needs to explain to the House why, in public sector contracts, the NHS cannot enter into a contract that stipulates that the building company takes the risk. That would contract away the risk that the Minister said would fall on the public sector under the present non-PFI system. That can be dealt with in a normal legal and contractual way.

Mr. Horam: To be honest, I do not fully understand the hon. Gentleman's point. The distinction that I am making is clear. We are saying that private sector finance must bear certain risks. If it does not bear those risks, or if the Treasury deems that the amount of risk is unsatisfactory, it will not agree to the scheme, and it will count as public sector finance.

Mr. Hughes: If we take as an example the Chelsea and Westminster or any other old-style contract, of course there is a risk that costs might expand. However, there is no reason why the trust cannot do a deal with the builder saying, "We will pay an all-in figure of, say, £50 million, and anything above that will be your responsibility and liability." That is normal. There are all sorts of building contracts. It happens to be the job that I did before coming here, so I know a little about it. It is perfectly proper to agree an all-in facilities contract or an all-in construction contract. All the risk of any additional cost can be contracted away. Why is it not possible for that to continue in the NHS in the future as it has legally been possible in the past?

Mr. Horam: The fact is that it has not been done in the past. We are taking a road that should perhaps have been obvious to previous Governments. It is a sensible road to take, because it means that we can take the burden off public sector finance.

The nature of the scheme is rather different. The hon. Member for Southwark and Bermondsey (Mr. Hughes), remembering the arguments that we had in Committee, is thinking of a construction scheme. We are not talking about "build and forget", which has been the typical method in the past. We are talking about a continuing commitment. The constructor owns the building and

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provides the facilities to support the clinicians. That is the difference between this sort of scheme and the scheme that the hon. Gentleman has in mind.

Mr. Hughes: There are two types of contracts: there are building contracts and there are management, running or facilities contracts--or whatever the Minister would like to call them. I accept that in the past the NHS has not said, "This is the fixed price, you take the responsibility". I am arguing that it is possible to do that without it being done in the private finance initiative way, which says, "You build it, you run it; we are simply an agent, a tenant or a lessee." That would be possible. There is an advantage if the NHS moves into an agreement for the services as opposed to an agreement for the building. However, it is entirely possible to keep that under a traditional contract. That does not make a strong argument for PFI as opposed to any other form of finance.

Mr. Horam: I cannot agree with the hon. Gentleman because it seems to me that what he is proposing is radically different from what has been the traditional pattern of public sector building. We are taking into account not only the construction of the building but also the ownership of the building, the supply of maintenance facilities, et cetera. To some extent, we are comparing apples and pears. The financial arrangements that we are putting forward are consistent with the sorts of risks involved for the private sector.

The hon. Member for Strathkelvin and Bearsden referred to the name of a consultant--I think it was Beard Dove--and he said that private contractors will suggest that the risk be reduced. Indeed, they will say, "We are being asked to bear too much risk in this case"--that is a natural negotiating posture for contractors. The fact is that they have to bear some risk and the amount of risk that they bear cannot go below a certain amount, or it will not be agreed to by the hospital trust or by the Treasury. They may put forward their point of view, but the Government will not necessarily agree to it.

5.30 pm

The hon. Member for Strathkelvin and Beardsden also talked about the Stonehaven example in Scotland and how much information was made available to the public. The bidders can decide how much knowledge of their bid is made available to the public. The health board has conducted a full public consultation about the types of facilities that should be provided and the facilities, in essence, determine the nature of the contract. Beyond that, the details of the negotiations are a matter for commercial confidentiality and the Government do not want to disadvantage the public sector or private bidders in this situation.

Mr. Spellar: Why?

Mr. Horam: It is a matter for discussion and negotiation, and it is not sensible to go into questions of commercial confidentiality when important issues are at stake. I refer to the comments by the hon. Member for York (Mr. Bayley). I am sure that he appreciates that the Bill translates what is at present a discretion into a duty. As we have always honoured the liabilities that we are talking about in the Bill, there will be no increase in the

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use of public funds. The practice has been to honour liabilities in the health service and that will not change. The final sentence of the financial memorandum attached to the Bill states:

    "Given that no NHS trust has so far been dissolved without its liabilities being transferred elsewhere, any additional expenditure occasioned by this Bill is likely to be negligible."

Mr. Spellar: How will this affect the concept of risk? When the Minister replied to the hon. Member for Southwark and Bermondsey (Mr. Hughes), he implied that risk was the danger that the provider of the building and services might fall down on the contract. That is a normal problem; that is not the question of risk that someone may fail to do the job for which they have been contracted. Risk is the danger that the market might collapse or that clients might go bust. By taking away the concept of risk even further, is not the Minister changing this from a PFI contract to an ordinary service contract, which, as the hon. Member for Southwark and Bermondsey pointed out, has always been capable of being operated--whether the NHS has chosen to do so is another matter. Therefore, this is changing the nature of risk in the contracts.

Mr. Horam: As the hon. Gentleman has pointed out, real risk not only involves going over budget on the contract, but involves taking into account market risks or the ownership of a building in which clinical services are taking place. A contractor or a provider of facilities may commit themselves to a contract that lasts a number of years. What the hon. Gentleman has said is absolutely true: there are many kinds of risk in the market. In this case, the private contractor will be bearing all the normal commercial risks.

Mr. Spellar: As the Bill underwrites and acts as the client of last resort, the Secretary of State has removed that major sector of risk in this project. Someone not doing the job is an entirely different issue. Risk is the danger that clients may not be able to pay their bills. That element of risk has disappeared.

Mr. Horam: That is not so--market risk is still there. For example, in five years' time there may not be the same demand for the clinical services that are provided today by the trust or by contractor. That risk will be borne by the facilities provider. He may find that his revenue is less than he expected it to be because the clinical services are not in as much demand as was originally thought. Market risk is still there. Therefore, we are not removing any risk that is normal.

Mr. Spellar: The Government are underwriting it.

Mr. Horam: No, we are not underwriting it. What we are talking about in the Bill is the normal commercial liability. [Interruption.] No, the hon. Member for Stockport (Ms Coffey) is quite wrong. Obviously, any organisation honours the liabilities that it properly enters into--that is, it fulfils the contracts that it makes. That is what the NHS has always done. However, it has been discretionary and it is right that we make what is de facto de jure to reassure the people who are involved commercially that there is no political risk. The Bill

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removes that element of political risk--it does not remove the normal commercial risk. I hope that the hon. Gentleman understands that.

Mr. Spellar: I understand the answer, but I am not entirely satisfied by it. There will be long-term contracts between the hospital trusts and the providers of the services. If, for example, the contract changes between the area health authority and the trust it may lead to the trust experiencing severe difficulties, which may lead the Minister to take action to do something about the trust--to dissolve it or whatever.

Therefore, the Minister is standing behind the contract and saying that the Secretary of State will act as the guarantor of the contract. Because of the size of the contracts--the Minister says more than £10 million--they will be long-term. Therefore, the Secretary of State will be acting as the final guarantor and removing that element of market risk.

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