Examination of Witness (Questions 580-599)|
WEDNESDAY 5 DECEMBER 2001
580. No doubt, Secretary of State, you had somebody
listen to the evidence of Mr Kiley last week. Why is he so opposed
to the concept that you have of the preferred bidder?
(Mr Byers) I think he has a different approach to
these major contracts. He has very strong views from his experience
in New York that almost the old style works contract is the one
he prefers. There are arguments which can be put forward to support
that particular approach. I happen to believe it is the sort of
approach which led to the problems we saw on the Jubilee Line
Extension, and I think there are better ways of approaching these
major investment decisions particularly the transfer of risk from
the public sector to the private sector, and that is something
we intend to achieve through the modernisation proposals.
581. It is also something we will not be able
to judge until we see all the detail. Will it be clear from the
contracts, because frankly if there is not to be a transfer of
riskand previous history of other deals has shown the risk
has not been taken out of the public sector and loaded on to the
private sectorit will be very difficult to justify this
(Mr Byers) I think you are right, Mrs Dunwoody, in
pointing out that this whole question of risk transfer is one
of the key issues that will need to be addressed.
582. You are satisfied this is going to be the
(Mr Byers) Like you, I am waiting to find out.
583. Predecessors of yours, Secretary of State,
were satisfied that what they were seeing as bids coming from
the private sector as far as the operation of the railways was
concerned were satisfactory, and look at the mess we have there.
If one compares that to what you are proposing, there is not a
lot of difference, is there?
(Mr Byers) I think there are differences. I think
the acid test is going to be when we have the details of the contracts
and when we have all this wonderful advice from the various consultants,
then we can have proper consultation and we can make our decisions.
I have no doubt this question of risk transfer is going to be
at the heart of whether or not value for money is going to be
achieved. I have a very robust view about this, I am not quite
sure what my predecessors may have thought of it but my view is
very clear, if we do not achieve value for money these will not
go ahead. It is as simple as that. The whole point of this is
that basically we have a once in a generation opportunity to get
it right and we are not going to blow it just because for dogmatic
reasons some people may think that a PPP is the only way forward
for London Underground. It has to achieve value for money and
it has to be safe. If it does not deliver on those two then as
far as I am concerned it will not proceed.
584. What happens if one of the bids which have
been analysed does not prove value for money?
(Mr Byers) Then we will need to have an alternative
which we can put forward. What I do not want to see is further
585. What alternatives?
(Mr Byers) We are working on those at the moment.
They will be worked up in time for the decision to be taken on
whether or not the three contracts achieve value for money and
we will look at them in the round but we will also look at the
contracts individually to see each one of them achieves value
for money. I was rather alarmed by Mr Kiley's comment last week
when he seemed to imply that you had to look at all three together,
because in fact the way the contracts have been drawn up you could
arrive at a situation where, for example, two of them were value
for money but one of them was not, because they are separate contracts.
We will have to look at that and decide accordingly whether that
is the case or not. But these are all issues we will need to look
at in January and February. We will also need to make sure, as
part of good, proper contingency planning, if we decide after
the consultation and after the advice that one or all of them
is not value for money that we have an alternative to turn to,
and that has to be the case. I want to make sure it is an alternative
which does not build in a year or two years' further delay. We
have to have something where we can move quickly and make sure
the investment can continue to go in even under a different model
than the present one being considered.
586. Who finally takes that decision though,
Secretary of State? Is it you or is it the Chancellor of the Exchequer?
(Mr Byers) It will be a Government decision.
587. I realise you are both in the Government.
Could we have a little more precise information? Frankly, there
is a definite view that the Treasury are having a very important
role to play at every level of this. When you say, "It will
be value for money", "We will evaluate it", who
will finally decide? Will it be you on transport grounds, or will
it be the Chancellor of the Exchequer on the grounds of overall
(Mr Byers) The level of public expenditure is such
that it is only right and proper that the Treasury will be closely
involved, because we are looking at £13 billion
588. Being closely involved and taking the decision
are not quite the same thing.
(Mr Byers) The decision, for better or worse, will
rest with myself.
589. Would you like to say that again?
(Mr Byers) Yes. The decision on behalf of the Government
will rest with the Secretary of State for Transport, Local Government
and the Regions.
590. With a certain amount of consultation with
(Mr Byers) On behalf of the Government. So we will
consult as is appropriate.
591. Can I repay the compliment the Secretary
of State paid to us at the beginning of the afternoon by saying
it is good to talk to the Secretary of State. Can I ask, Secretary
of State, what happens if during the life of the PPP contract
one of the contracting companies goes bust?
(Mr Byers) There are provisions, in fact they are
within the Greater London Authority Act, about the measures which
will be put in place if one of the companies goes into insolvency,
because what we cannot afford to happen is for the system not
to operate. So there are measures which are contained within the
legislation which will be implemented.
592. Are you aware, Secretary of State, that
a number of witnesses have said this is a very complex procedure
and that the cost, in terms of possible cost to the taxpayer and
an ever spiralling subsidy, could be enormous?
(Mr Byers) The cost of?
593. The protracted negotiations of a company
going bust and Transport for London having to come in and take
that over? It is a very convoluted process and there will be a
(Mr Byers) I would hope that none of the preferred
bidders will become insolvent but these things do happen in a
commercial and marked-led world. What I think we need to do is
to make sure that the procedures are in place to cover that eventuality
whilst hoping it does not occur. As I say, the provisions have
been laid down very clearly in the Greater London Authority Act.
594. I do not know if you had the opportunity
to see Mr Kiley's evidence last week to us in our evidence session,
but he went so far as to say, "I think it is poor public
policy" not to have such a procedure. Do you not accept that
over the life of a contract, especially one lasting 30 years,
something might indeed go wrong and that ultimately a company
may be able not to perform and perhaps you should have envisaged
that in the contract?
(Mr Byers) I agree, I think there will be appropriate
procedures put in place, but I am very mindful that sometimes
when proper contingency planning occurs and people do draw up
proper procedures ahead of that eventuality, they could be criticised
for it by saying they have pre-judged their own decisions. I am
sure we all want to make sure in the context of London Underground
we will put in place the appropriate procedures as well, because
it is proper contingency planning.
595. I think I understood you to say that this
is not privatisation. Is that a yes?
(Mr Byers) Yes, this is certainly not privatisation.
596. If I was to play back to you something
we received in written evidence from Transport for London, they
said that insofar as the infrastructure companies maintain long-term
control over the Underground infrastructure, coupled with the
long-term economic interest in that infrastructure, that effectively
vests the infrastructure companies with ownership of the infrastructure
over the 30 year term of the contracts, and I put to you, Secretary
of State, that to all intents and purposes, all substantive purposes,
that is privatisation.
(Mr Byers) No, it is involving the private sector,
and I do not have a problem with the private sector being involved
provided we do so to achieve the means of improving public services.
That is what I believe we will need to see from these negotiated
contracts. A number of the critics have said, "This is a
Railtrack on the Underground", the important thing to make
very clear is that the only shareholders in the London Underground
will be the people who buy their ticket to travel the system,
and they are the people who have to be the priority. So it is
not a privatisation, as some people have said. London Underground
is not going to be quoted on the stock market, London Underground
is going to continue to be a publicly owned company. They will
enter into contracts with the private sector but this is not unusual.
For example, if you look at any school building, the school remains
in the public sector but it is often built by the private sector.
There is not a problem here and I think we have to make a clear
distinction between the involvement of the private sector, the
private sector working for a publicly controlled London Underground,
as opposed to the private sector calling the shots and being able
to dictate the priorities, and that is not going to be the case.
It is not going to be the private sector accountable to shareholders,
but London Underground accountable to the travelling public.
597. Why is there no right to resume public
control of the network if an infrastructure company becomes insolvent?
(Mr Byers) It is laid down in the statute and these
were debated in the Greater London Authority Act and the provisions
are there and they will be introduced if this happens, but it
is a hypothetical situation. I think you are right to point out
that we do need to make sure that proper procedures are in place
if this ever happens, and I will certainly make sure that will
be the case, because it is proper contingency planning, which
is what we have to be prepared for.
598. Would you at any future stage seek a power
of direction to intervene were a company, an infrastructure company,
be seen to be under-performing in not delivering your test of
improving the infrastructure?
(Mr Byers) The prime responsibility has to be with
London Underground as the contracting body, and it is very important
that they have powers within the contracts they negotiate to move
in and terminate contracts if there is under-performance. I think
we will see when those contracts are negotiated that such a power
will rest with London Underground. I also think it is important,
because safety is so significant, that London Underground should
have step-in rights if they feel any work is being done which
is not up to the appropriate safety standards, they can move in,
they can take the company off the job, they can put their own
people in to do it properly and they can bill the private sector
as a consequence. I think it is important those powers are contained
within the contracts as well. This is all part of getting a good
deal for the travelling public. Certainly I hope that London Underground
will be negotiating such terms and conditions with the preferred
599. Finally, would you agree that the key role
of the arbiter is to determine contract pricing at the time of
the 7½ year review, and that the ability of the arbiter to
perform this function will depend on the quality of the information
available and the reference to comparable businesses, and that
we are slightly handicapped by the fact there are no comparable
businesses and it may well be the infrastructure companies are
effectively left with a virtual monopoly which they are free to
(Mr Byers) I do not think that will be the case. The
arbiter is appointed by the Secretary of State as a result of
provisions contained within the Act. I have no doubt they will
be able to find an effective way of identifying whether or not
the infrastructure companies are delivering, and when they come
to do the periodic review after 7½ years, there will be,
if we do achieve value for money, if value for money is identified
by the three preferred bidders, an element of cross-referencing
between those contracts because they will not all be held by the
one consortia, so there will be opportunities there. I do think
there are ways in which the arbiter will be able to judge whether
or not we are getting a good deal as far as the taxpayer is concerned,
and also whether or not the infrastructure companies are getting
a good deal themselves as well. But that is going to be the challenge
for the arbiter. These things are never easy but I do believe
within 7½ years they will be able to identify ways in which
they can do it.