Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 100 - 119)

MONDAY 15 APRIL 2002

MR NIGEL CRISP AND MR PETER WEARMOUTH

  100. I do not quite understand why accounting deadlines will be important. Are they important to the purchaser or to the seller?
  (Mr Crisp) Again, can I bring Mr Wearmouth in to explain this pattern. I think the answer is both.
  (Mr Wearmouth) Yes, I think the answer is actually both. If you look at sales, the actual value that you are going to dispose of a property is agreed some months before contract completion. The actual income that is identified here will take place at contract completion. The value will have been known some time before the graph indicates incomes coming in to the NHS or the number of disposals which have taken place. We will know the income. There is no reference within the document to say that value for money was not achieved. We have carried out a review and looked at the graph to see if it has any issues—

  101. You are not quite answering my question. My question was why does it help you to have that money suddenly coming in in March rather than before March? You set up a deal in, say, September, apparently you set up deals such that you do not pay until the following March. Why do you always insist on payment the following March rather than, say, the following April or any other point? I do not see why you have an advantage.
  (Mr Wearmouth) I think the actual income profile of the sale is predominantly down to the private sector and actually paying us before the end of the financial year to meet their income projections and targets financially.

  102. What you are saying is that it is the buyer's wish that so much of the money comes in in March as opposed to anywhere else?
  (Mr Wearmouth) It is normally the buyer's wish, yes, we try to push it as fast as we can to get the money in as quickly as we can. This graph normally, I would say, would be down to the private sector and their accounting processes rather than the NHS.

  103. Do you use that as a negotiating tool? Presumably if they want, so to speak, to shift all the money coming back to you so they make the payment as late as possible, right at the end of their financial year, presumably you might say "Pay a bit more because you are holding up the money for us"?
  (Mr Wearmouth) If the sale was protracted and went on for a period of time of course we would have to seek another valuation. We may need to look at a remarketing situation depending on how long the sale actually takes.

  104. What I am saying is if you are making an agreement and perhaps signing a contract in September and you agree to allow them to make the largest part of the payment in March, as is apparently happening quite a lot, are you at the same time saying, "In return for us agreeing that you will not pay the final sum until six months later in March, we want to insist on a higher payment of some sort to make up for the interest we have lost"?
  (Mr Wearmouth) If we have the sort of arrangement where we have staged payments we do have some compensation, some interest payment that is paid there.

  105. You are getting a lot of staged payments and most of the staged payments are through to the end of the financial year.
  (Mr Wearmouth) These payments are always made in the last minute of the financial year and this is the practice of the private sector and the property development industry.

  106. Are you getting the benefit of that through your negotiations or are you just allowing them to pay late?
  (Mr Wearmouth) We do not allow them to pay late. We have the valuation, we agree the valuation, we agree a sale price, the property is subject to the market-place, the market-place determines what the value of that property is. We then conclude the sale through due legal process and we try to achieve payment within the financial year. However, it is predominantly down to the private sector when they pay us for something. We try to pursue them and we try to get the money as quickly as we possibly can, but this graph indicates when normally we receive income and again it is down to the private sector.

  107. Is the payment date not specified in the contract or do you just ask them for money and keep asking them and they keep putting you off?
  (Mr Wearmouth) There is a payment date when the contract is signed and completion takes place but it is a difficult time. What we are doing here is selling property for the best possible price.

  108. Mr Wearmouth, you are missing the point. Either you are setting up a contract in September that says we will be paid in March because the private sector wants to pay right at the end of financial year, and if that is the agreement between you and the private sector, it seems to me that you have the right to say, "If you are not going to pay us for six months we will accept that but in return for that we expect to have an extra £5,000 on the price to make up for the interest we have lost." That may be what is happening. The alternative that seems to be happening is you are saying in September we have got a contract for a certain sum and we expect to be paid that. The private sector says, "Yes, okay, we will pay it to you", and you are hoping that they will pay in November or December but, in practice, year after year you find they always put it off until March. In that situation you are losing out it seems to me by not setting up a contract properly so you know exactly when you are going to be paid.
  (Mr Crisp) May I suggest that we give you a written response to this as to whether or not we invoke a penalty or use this in contract negotiations.

  109. I would be happy to have a written response rather than no response, but I am quite surprised that you cannot tell me now.
  (Mr Wearmouth) If contract completion is delayed we would expect extra monies.[1]

  110. If completion is delayed beyond what you say. The fact you are being paid so often in March either means you are getting extra monies because you expected it in December or it means that you agreed it to be paid in March, in which case you would expect to include that in the contract price in some cases.
  (Mr Wearmouth) Yes.

  Mr Rendel: I am glad to hear that is the case.

  Chairman: If you do a note could we have it some time within the next three months please!

  111. Can I ask what happens when a site becomes part redundant. We have a case in my constituency where a hospital has been part redundant for a long time and the part that is redundant is just sitting there until the rest of the site becomes redundant. What guidelines do you give to trusts as to whether they should try to sell off the part of the site that is redundant and get at least half the money early or whether it is better to carry on and wait until the whole site is ready for development?
  (Mr Wearmouth) We normally carry out a site development brief in conjunction with the local authority and if we can dispose of part of the site as part of the process of developing additional housing or additional recreational facilities we would carry that forward.

  112. So the advice to them is to at least look into it as a possibility?
  (Mr Wearmouth) Yes.

  113. What about change of plan as to how the site is going to be used. Given that it takes up to five years to develop a site, it may be that the market changes and initially you may have thought the best use is to sell it off as an office site and five years down the track suddenly housing is what is important and the value of the land goes up. Are you flexible enough to be able to change like that halfway through?
  (Mr Wearmouth) Providing we can get planning permission, yes.
  (Mr Crisp) It is part of the point of the annual review, which is the point made in the Report.

  114. Can I turn to Paragraph 3.7 on Page 23, this is the point that Mr Davies was talking about a moment ago, when 95 per cent of the valuations turn out to be below the outcome price and your average excess price is 32 per cent above the valuation. That is one of the reasons you said you are having problems in getting good value for money out of your sales.
  (Mr Crisp) Yes.

  115. If I had those figures I would go back to my valuers and say, "You are getting your valuations wrong mate", because, frankly, I would expect valuations in general to turn out in the middle of the final outcome and that the average excess would be zero and you would have as many below as above if the valuations were correct. Why are the valuations almost always below?
  (Mr Crisp) I cannot answer that question. I have no comparisons with district valuers' valuations in other market. No doubt we can find that out. I do note in this Report that the NAO did not think that was unusual in terms of making any particular comment on that. I do not know what the normal pattern is in any other market.

  116. Perhaps I could ask the NAO whether district valuers are always bad at valuations. I should say it is not my experience in local government but perhaps it is the NAO's experience. Or is it that the valuations are coming in so much in advance in many cases that they are way out of date by the time the sales are made, which I suspect is the case.
  (Dr Robertson) I think it is the latter. We observe in Paragraph 3.8 that some of the largest differences between prices and valuations arose because NHS trusts did not update the valuations. That is the biggest factor but we did take up the broad issue of valuation with the Valuations Office and we discuss that in Paragraph 3.10 where they say that their service is providing a reasonable pre-sale guide price but they also commend a move away from single point valuations to take account of uncertainties so that you can take into the picture a wider range of factors. So there are improvements that are possible.

  Mr Rendel: Thank you. Thank you, Chairman.

  Chairman: Thank you. Mr Brian Jenkins?

Mr Jenkins

  117. Like Mr Steinberg I probably shall not take 15 minutes either because a lot of the questions at this stage have been answered but I would like to run over one or two things again just to clarify them in my mind. The newly created primary care trusts have to put strategies into place. You have got a lot experience on this so what guidance are you offering to these new trusts, particularly bearing in mind that on Page 15 we see that in existing strategies with existing trusts a large number do not at the present time itemise their estate so they can tell which is the least operationally important, and therefore we do not know when they sign off what they might need in the future and we do not seem to have a reasonable set of incentives for them to indicate what is true surplus estate.
  (Mr Crisp) Let me again start the answer and then ask Mr Wearmouth to pick up some more of the detail. The first point is that the PCTs are almost always taking over from an organisation something similar in shape and size so there may well be an estates strategy for them to build on. The second point is about the exemplar strategies which were only brought in in 1999. Mr Wearmouth happens to have here a couple of documents including one which very carefully takes you through step-by-step what is expected in developing an estates strategy. Alongside that there are people from Mr Wearmouth's organisation who are available to help people to do that. Those would be the sort of steps. Firstly , there is almost certainly something already there in existence. Secondly, we have a very clear methodology for doing it. Thirdly, there are people there to help and support them to bring the strategies into existence.

  118. 81 trusts do not even know and have not got a strategy for optimal use of resources for their estate.
  (Mr Crisp) This was mid-2000 and a number of those organisations have gone out of existence and, again, we have moved on since then. We do not have a figure for right now as to how many have got strategies but we anticipate by the end of this year that it will be everybody.

  119. My experience shows that the trust goes out of business but the personnel do not, they move from trust to trust.
  (Mr Crisp) Some, that is right.


1   Ev 23, Appendix 1. Back


 
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