Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

MONDAY 1 MARCH 1999

SIR ALAN LANGLANDS and MR TIM MATTHEWS

  40.  So the taxpayer effectively at the end of the day has to pick up that difference?
  (Sir Alan Langlands)  To the extent that value has been achieved for that money and there is not really a point beyond that 1991 period where the NAO Report criticises value for money, these are legitimate changes. Something was received in return for these payments being made to the contractors and there is no doubt about that, but the early control and the early planning and the failure to freeze the design was not, in my view, and I have accepted, in the interests of the taxpayer.

Mr Twigg

  41.  Sir Alan, this Report appears to me to catalogue an unbelievable amount of incompetence and complacency verging on sheer recklessness going from the decision to base it on a greenfield site, and we know what the site looks like because we have seen pictures, down to the actual day-to-day control and management for long periods. It seemed to be out of control and there was no real management control at all. Would you agree with that statement?
  (Sir Alan Langlands)  I do not agree with it entirely, but I have——

  42.  How much of it do you agree with then?
  (Sir Alan Langlands)  I think that there were controls at certain points. These were clearly not sufficient and I think the work from the point at which the scheme was costed at £83.1 million, the process from then on in at least has an explanation and one can uncover the reasons why certain changes were being made and indeed the NAO do not comment adversely on many of these. What I think——

  43.  Would you agree that clearly this project was out of control and no one really had site control over the particular project?
  (Sir Alan Langlands)  I think there was a period, well, there was an early phase where the costings were unrealistic and I accept that there was no——

  44.  But in terms of the day-to-day management, the relationship with the contractors?
  (Sir Alan Langlands)  I think in the period, I would judge, 1989 to 1992, this could have been controlled much better without any doubt.

  45.  What worries me a little bit is the way you have commented on this here in terms of complacency. I am not quite sure, I do detect that complacency in the way you have approached this in the answers to the Chairman and Mr William's question earlier. You talk about: "Well all of this happened a long time and I cannot really get to the bottom of it", well that is important in terms of what lessons will you learn in the future. You say: "The community has got a good local hospital, good services". Well, that might be fine in London but to my constituents in my constituency of North Cheshire and Merseyside that does not give them any comfort the fact that this has overrun by such a massive amount of money, why should that be? Why should that give us comfort? The fact is that if you have not got a good service out of this it would be even more unbelievable in terms of what has happened in this.
  (Sir Alan Langlands)  Certainly I do not want to be complacent about this. Indeed as a result of coming into a position of seeing this scheme not being adequately controlled, we have intervened at two levels. I intervened at two levels. One was to stabilise the position in relation to this scheme with the help of Tim Matthews and his staff and the other was to prepare very clear national guidelines and very clear control mechanisms that were aimed at ensuring that this did not happen again. To that extent there is absolutely no complacency. I accept also that where one cannot give a legitimate answer in relation to some of the cost increases or a legitimate explanation that is poor and that the inflated costs of this scheme probably did have a detrimental effect on the timing of other major health schemes around the country. As I said in relation to Mr Page's question I cannot specify which one.

  46.  If you look at paragraph 2.13 page 23 it says: "... represented a real term cost increase of £41 million (80 per cent)."
  (Sir Alan Langlands)  Yes.

  47.  £41 million?
  (Sir Alan Langlands)  Yes.

  48.  Now you can think what that might have done around the country in terms of other hospitals and other services. The point I am getting at here is this is not just an issue of overrunning by a small amount, it is a massive amount which has had implications for really the whole country in terms of the health service. It was not just a little blip, this was an absolutely massive incompetence exercise by those in charge.
  (Sir Alan Langlands)  Certainly it is true that it is very significant and I do not wish to understate that or understate the effects in other places.

  49.  I am glad to hear that because I thought you were doing before.
  (Sir Alan Langlands)  I am not setting out to do that, although as we have said, some of these cost increases have explanations. The most significant, obviously, being the VAT but some others, the improvement of mental health services in that part of London was judged to be a priority against all the priorities in the country. It was not as if we were willy nilly spending all of this money but I do accept——

  50.  You spent a fair amount of it willy nilly.
  (Sir Alan Langlands)  —— I do accept that there were failures of control. I have said that several times.

  51.  Can we just be clear on this. You accept there were failures, were they significant failures, sizeable failures or were they minor? Can we be a little more specific?
  (Sir Alan Langlands)  On a scheme of this scale there were significant failures and I accept that they have a knock on effect probably on the pace of capital investments in other parts of the country. I cannot be plainer than that.

  52.  Can we just come back to the issue of the design brief again. I put to you paragraph 2.28. It says in the second sentence: "...'their work was being hampered by the fact that the client was still developing the design brief'."
  (Sir Alan Langlands)  The question is?

  53.  It says: "...' their work was being hampered by the fact that the client was still developing the design brief'".
  (Sir Alan Langlands)  Yes.

  54.  Is that a significant or a minor error.
  (Sir Alan Langlands)  I think the chosen contractual route was a management contract. At the heart of this management contract I think there was an issue about the role of the consulting engineers for the mechanical and electrical work. It has not been possible in all of this to untangle—these were significant issues, I accept they are significant—whether Austen Associates, the consulting engineers concerned, were just late because of changes in the design brief, over which they had no control, or they were inefficient or as we suspected later problems arose at the interface between the design——

  55.  Can I interrupt you there. Time is brief. Can we come back to this, would you accept that particular mistake had massive implications for the whole project?
  (Sir Alan Langlands)  I think that the failure to freeze the design on a project of this scale was bound to have financial implications.

  56.  Large financial implications?
  (Sir Alan Langlands)  Significant financial implications.

  57.  Right.
  (Sir Alan Langlands)  Also I can see why there may have been reasons, because of the complexity of the mechanical and electrical engineering, why these things cropped up. It has not been possible to untangle these reasons and indeed part of that complexity is why there was a settlement out of court on that.

  58.  You feel confident that will not happen again despite the fact that you were not able to untangle the complexities of this?
  (Sir Alan Langlands)  I think there is much more control and there is very clear guidance about the need to freeze designs at the earliest possible opportunity and to try and fix costs, to estimate risks and to ensure that projects are more consistently and conscientiously managed.

  59.  Can we go on to the fact that in paragraph 2.32 at page 29—it is something which follows on really—can you tell me why there is no agreed funding strategy? You can see there it says that: "In February 1991, the Region and Trustees proceeded with a Stage 2 management contract, despite failing to resolve the funding issues". Another sizeable error.
  (Sir Alan Langlands)  I explained earlier that their decision to proceed was pretty finely balanced. It is the issue I talked about with Mr Page. It was the gap between the £83 million and the £115 million. VAT accounted for a large sum of that but there was still an overshoot at that point of 18 per cent. The Treasury guideline should have been to report back in, if you like, to the centre if the excess had been greater than 10 per cent. These were estimates rather than tender prices. There was an assumption because of the slump in the building industry, that the tender prices would deal with that gap and that general growth later, in line with the GDP deflator, would cover additional costs.


 
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