Examination of Witnesses (Questions 140-159)|
GERSHON CBE, MR
WEDNESDAY 12 DECEMBER 2001
140. Where are we passing the good ones on?
Where is the source? Where is the centre? Is that Mr Gershon's
remit? Do you pass on the good news and say "This is a good
scheme. It is a good PFI. This is how it is set up. This is how
it is run. These are the check points to abide by"?
(Mr Gershon) Yes. Part of the Gateway Review process
is to get a much sharper insight on to where we see good things
happening where we can encourage other clients to replicate them.
141. You use this term "encourage".
Why do we not insist they pass through the process, the procedure,
before they are allowed to PFI?
(Mr Gershon) I am probably going to get this wrong
in constitutional terms, still as a relatively lay person. At
the end of the day accountability for what goes on within a department
rests with the individual Accounting Officer. He is the ultimate
authority. He is accountable to you and to Parliament for the
decisions that he makes. Now, with the Gateway Review process,
my experience has been because of where we have deliberately focused
the attention on the early life of projects where there is the
greater scope for management to take corrective action, the accounting
officers are paying a lot of attention to the recommendations
that are emerging because much to my surprise most of them do
not seem to like coming here defending what has gone wrong in
the past. They seem to welcome the recommendations that we are
providing to them to help try to get projects on to much stronger
foundations in the future.
142. I think we try to be as helpful as we possibly
can. One of the things I try and do is to explain that. When a
person comes here as an accounting officer and says "I have
put a PFI through the system. I took no advice. I did not put
it through the guidelines.", they can expect to get roasted.
You can take that message back. I am surprised as a Government
we have not stopped them from going ahead with any scheme unless
it is given clearance and they have gone through a set procedure,
understood what the risks are and how to overcome the possibility
of a risk. You say it is left to each individual authority or
each individual accounting officer?
(Mr Gershon) It is still very early days yet. It can
only have real benefit on projects which are still very much in
their gestation period. With the Gateway Review, my experience
has been that the Accounting Officers respond to the recommendations
143. If I can go on, very quickly. I think you
did answer this. I noticed declining enthusiasm for PFI but I
thought as the projects become less appropriate with PFI, as the
risk was much more difficult to transfer, you said "Yes,
there were one or two which now we have scrutinised we have decided
to pull back from because there was recognition that you cannot
(Mr Gershon) Mr Ryan said that in a number of NHS
hospital projects the client felt that there was better value
for money to be obtained by going down a non PFI route than a
PFI route. Therefore he went down the route which provided better
value for money.
144. Mr Busby, quickly. How do we stopthis
is almost impossiblethe contracting team from your particular
company or any other company having stitched up a deal, a very
good deal, then moving off to stitch up another one? How do we
ensure the contractor leaves his team in place for the duration
of the contract?
(Mr Busby) I had a slightly different view to what
was expressed with regard to this continuity because on my side
of the business the skills needed to put the deal together are
very different skills from those that are needed during the progression
of the contract. Yes, there will be undoubtedly in any organisation
some links but fundamentally the people that are building the
hospital, for example, are not the same ones who will negotiate
the contract to build it. This requirement for continuity from
our side of the fence is somewhat different.
145. And impossible to maintain?
(Mr Busby) Always. If we felt that we would like to
do that then I am afraid the market forces would obviously prevent
us from achieving it, I suspect.
Mr Jenkins: Thank you very much.
146. Mr Busby, the Kier Group that you are in
charge of turns over one billion pounds a year.
(Mr Busby) Yes.
147. Can you tell me what proportion of that
(Mr Busby) In turnover terms last year less than 50
million of it.
148. Is that all? Okay. So there is 50 million
in turnover. I think you said you expected over two per cent return
on turnover, that you were hoping to reduce it to one per cent.
I hope the shareholders are not listening to that. Can I ask how
your expected rate of return between PFI and non-PFI compares?
(Mr Busby) PFI returns, on the experience to date,
149. How much? What are the figures?
(Mr Busby) About 2.5 per cent, I would estimate.
150. On PFI?
(Mr Busby) On PFI.
151. What is your normal rate?
(Mr Busby) One per cent on other contracts.
(Mr Busby) But, if I could add to that?
153. No, do.
(Mr Busby) The risks involved in this process are
significantly greater. For example, the contract that such a return
made, because it is really largely one contract, required us to
invest £4 million before we had a signed deal. Right up until
a minute to midnight that deal could have aborted and we could
have lost £4 million, and that is more than we made on the
154. You invested £4 million before signing
(Mr Busby) Yes.
155. In preparation with solicitors and all
the rest of it to get the contract?
(Mr Busby) Yes.
156. For a contract of what value?
(Mr Busby) Just under 70 million.
157. Seventy million?
(Mr Busby) Yes.
158. I thought you said a moment ago your total
turnover was only 50 million for all PFI projects.
(Mr Busby) Last year that 70 million contract was
of two and a half years duration.
159. So what value of contracts have you established
with PFI extending into the future if you brought all that cash
(Mr Busby) In contract terms I have not got that.
Can I come back to you on that?