Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 80 - 99)

WEDNESDAY 21 NOVEMBER 2001

MR DEREK SMITH, MR MARTIN CALLAGHAN, MR MIKE STRZELECKI AND MR TONY POULTER

  80. Mr Callaghan, we are not questioning your commitment, we are just trying to sort out what it is you intend to do, and what you are really saying is that, you actually used the word `maintain' for seven and a half years?
  (Mr Callaghan) We are going to replace the assets as fast as we can, and we are going to maintain them while we are replacing them.

  Chairman: I do not think we are getting very far on this.

Dr Pugh

  81. Can I just press you on the value for money aspect. As I understand it, it is Ernst & Young who are going to do the final assessment for you; is that correct?
  (Mr Smith) Yes.

  82. And are they perfectly clear about what they have to do, given that they, in their own submission, are actually looking at a methodology for doing it?
  (Mr Smith) Yes. Again, I think I would like to turn to Mr Poulter, if I may, to give detail as to how we are going to do this.
  (Mr Poulter) Just to clarify, Dr Pugh. We, at PricewaterhouseCoopers, are helping London Underground do the value for money assessment. It will be assessed using a methodology which has been audited by KPMG, and Ernst & Young are doing what I would call a value for money audit, to advise the Government on whether they are satisfied that it is being done properly.

  Chairman: It includes the fees of all the consultants, I think.

Dr Pugh

  83. Yes, proper evaluations, but the evaluation process, you acknowledge, is going to be a fairly complex one, and certainly not a lucid one, so far as most of us are concerned?
  (Mr Poulter) Yes.

  Dr Pugh: Do you see substance in the submission to this Committee by the Borough of Kensington, who say that, when faced with the criticism—

  Chairman: Order, order. The Committee stands adjourned for 15 minutes.

  The Committee suspended from 4.35 pm to 4.46 pm for a division in the House

  Chairman: Order. Dr Pugh.

Dr Pugh

  84. I was just going to ask you, before we were interrupted, do you agree with the London Borough of Kensington, in their submission to this Committee, that, given the sheer complexity of the assessment that needs to be made, it is possible for you to hide behind these factors and produce what is, in the end, a subjective result, and nobody is very clear as to how you have arrived at it?
  (Mr Smith) Mr Poulter has described the extent to which this decision is going to be professionally scrutinised. It is quite clear, it is also going to be publicly scrutinised. And I do therefore consider that all the factors in this decision will be examined in the minutest detail and that we will be unable to hide behind anything.

  85. Given that, can I quote from the submission of the London Transport Users Committee, who say: "We would regard it as prudent for the Government to invite the National Audit Office to revisit the PPP before finalising any contracts." Do you share that belief; would it be a good thing?
  (Mr Smith) We have expressed the view that we would be very happy for the National Audit Office to do that, but I understand that the National Audit Office would, in fact, examine the conclusions that we come to after the deal has been completed.

  86. But you would not object to them going first; and, to put a hypothetical question, if they went first and if they delivered a different verdict from the one you favoured, or the one that Ernst & Young come out with, would you still go ahead?
  (Mr Smith) To answer your first question, we would have no objection to the National Audit Office examining this; and, in fact, in order to enable their ex post facto examination, they are already involved with us and looking at what we are doing, because they cannot do everything after the event. My answer to your second question would be that—

Chairman

  87. Before you leave that, it is not quite the same thing, is it? You will know the recommendation this Committee made before, Mr Smith?
  (Mr Smith) Yes, indeed, Chairman, and I think that stimulated the first involvement of the National Audit Office.

  88. And, therefore, the fact that you are talking to them about what they would look at after you had taken the decision and signed the contracts is not the same thing, is it?
  (Mr Smith) No, it is not. As I said, we would be very happy to be involved with the National Audit Office in any way appropriate, but it is not our decision as to when they would be involved.

Dr Pugh

  89. But you would be happier to go forward with their blessing, rather than without?
  (Mr Smith) We would be happy to go forward with their blessing, or for them to examine it afterwards.

  90. Moving on to what happens years down the line, I understand, in a PPP, that what will happen is, penalties will be imposed where people do not deliver and rewards will be given when they do. If they get it badly wrong though, in the way that Railtrack have got things badly wrong, and they become insolvent, what happens then?
  (Mr Smith) Chairman, may I ask Mr Callaghan to explain the arrangements around the contract termination.
  (Mr Callaghan) What happens is that the performance of the infrastructure companies is obviously measured over time, and there are performance standards to which they have to adhere; and if they fail to do that there are predetermined rules in the contract which describe the basis on which the contract will come to an end. And so the arrangements under this contract are not the same as the arrangements in the Railtrack situation, because the rules for what will happen in those circumstances are laid down in advance.

  91. If, on the other hand, you get it wrong in a contract and, say, sufficient modernisation is not built into the contract, sufficient developments, I understand the Mayor of London then needs to consider whether further action will be taken; is that correct? It is no longer your responsibility, up to that point?
  (Mr Callaghan) The arrangements for what happens to London Underground after the Public Private Partnership is implemented are that, under the GLA Act, London Underground will become a subsidiary of Transport for London, and then what happens in the future, in relation to the PPP, will fall within Transport for London's statutory duties, in relation to transport generally in London.

  92. And the resources at their disposal, whatever they are?
  (Mr Callaghan) That is correct, yes.

  93. Thank you. Finally, a lot of Parliamentary Answers have elicited recently that there has been a severe deterioration in performance, on many aspects of the underground; one notes things like the very high rate of absenteeism and the fact that it is increasing. To what do you attribute this, is it demoralisation, not knowing their future, or, alternatively, is it just poor management, and has it anything at all to do with your preference for a PPP?
  (Mr Smith) If I might respond, Chairman. We have had, in the last year, or so, certainly a problem of staff absence in both trains and stations; in stations, we have rectified that completely, and in trains nearly completely. And I do believe that there was insufficient attention being given to this matter, which meant that we had to suddenly give it a lot of attention, and we have brought the position back to a level of absence which is acceptable, but can still be improved.

  94. The next round of published figures will make very different reading?
  (Mr Smith) Indeed, they will.

Miss McIntosh

  95. Just to ask Mr Callaghan; you said that you are going to come under the responsibility of Transport for London. Will there not be a tension there, if they are not in favour of the PPP?
  (Mr Callaghan) The statutory arrangements are that Transport for London will inherit the PPP, as it is implemented under the current structure. Obviously, we are extremely keen to work alongside Transport for London for that to be a smooth handover.

Mrs Ellman

  96. When you described the arrangements for assessing value for money, you described what sounded like a consultants' paradise, with one group of consultants reporting to another. How much money do you think we are going to be paying consultants, over the next 30 years, which is the period that the assessment is for, if this proceeds? Have you made any assessment of that?
  (Mr Smith) No, we have not. The description of the assessment of value for money was around the fact that the work that will be done by Pricewaterhouse, advising us, needs to be independently audited, and that is what KPMG will be doing. The Government wish to satisfy themselves, independently, that the work that we have done is indeed appropriate and value for money, and so that is why they have engaged Ernst & Young. So there is no doubt that this decision, or set of decisions, will be well audited. Now the use of consultancy going forward is very difficult to predict; there is no doubt that London Underground, or Transport for London, as it will be, will use consultancy for many aspects of the development of railway networks in London, they will want to look at which line upgrades are appropriate and are not, whether new lines will be available, so there will be a huge amount of consultancy work there. And, of course, the private sector infrastructure companies themselves, separately, will be employing consultants to look at the projects that they need to undertake and to design and plan them.

  97. Could you make any assessment of what kind of money we are talking about; is it millions, billions, what are we talking about?
  (Mr Smith) It will most certainly be millions, but very difficult to assess more accurately than that.

  98. And if KPMG were wrong, could they be sued?
  (Mr Smith) I assume that it would be possible that if they performed their responsibilities negligently, as any other consultant, they would be accountable for that, and could be brought to account.

  99. So you think they could be accountable if this system goes wrong?
  (Mr Smith) But the decision, of course, is the decision of London Regional Transport, audited by others.


 
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