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Lord Lucas: My Lords, I am very sorry if I misheard the noble Lord. Nevertheless, I am conscious that there are other subjects on noble Lords' minds today. The noble Lord, Lord Carter, asked a number of detailed questions, to which I should like to give a proper reply. If the noble Lord will allow it, I should like to give that reply in writing.

On Question, Motion agreed to.

Contracting Out (Highway Functions) Order 1995

1.32 p.m.

The Earl of Courtown rose to move, That the draft order laid before the House on 27th June be approved [25th Report from the Joint Committee].

The noble Earl said: My Lords, I beg to move. This order, under Sections 69 and 77 of the Deregulation and Contracting Out Act 1994, will enable the Secretary of State for Transport to contract out certain of his statutory functions as highway authority for the trunk road and motorway network.

The powers are needed for two purposes. The first is the replacement of present maintenance agency agreements between the Secretary of State and local highway authorities by a new model contract, for which both local authorities and private companies could compete. The second is our intention, as part of the private finance initiative, to procure on some sections of the network a comprehensive construction and road management service from private companies—commonly known as DBFO (design, build, finance and operate) contracts. Essentially, companies are being invited to compete for contracts to deliver a major piece of new construction and then manage what they have built for a considerable number of years after the road is open to traffic. The order will give DBFO companies the delegation of powers that they would need to carry out their responsibilities effectively.

Before I go into the detail of the order, perhaps it would be for the convenience of the House if I say a few words about the underlying policy. The purposes of the order have a common theme in helping us to get a better service out of the existing road system. The vast majority of design, construction and capital maintenance activities are already undertaken by the private sector. It seems sensible to see whether and to what extent the more day-to-day management of the system could benefit from competition.

The Secretary of State's formal responsibilities are exercised by the Highways Agency, an executive agency within the Department of Transport. However, day-to-day activities, such as management and maintenance on the trunk road and motorway network, can be delegated by virtue of Section 6 of the Highways Act 1980. These arrangements are set out in the agency agreement, a document whose form dates back to 1948. The Secretary of State's powers are, however, confined by Section 6(8) of the 1980 Act to those agency agreements which are made with the particular local highway authority whose area covers that particular section of trunk road. In other words, we are limited

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by administrative boundaries which have no particular relevance to the trunk road network; nor may private sector contractors enter into such arrangements. That severely limits our ability to test value by competition.

A consultation document Trunk Roads and Motorways: Review of Agency Arrangements was issued by the Highways Agency in April. This also set out proposals for new agencies and their areas under which the new style maintenance and management contracts might operate. The intention would be to allow local highway authorities, or consortia of them, to compete with private companies for the work. A copy of the draft order was included in the consultation document.

For DBFO contracts, arrangements would be slightly different, as in each case major new construction is also required, lying beyond the normal capability of the local highway authority. The main contract would be between the Secretary of State and the DBFO company responsible for delivering the construction and then managing the built road. We are not, however, against allowing local highway authorities the opportunity of bidding for subsidiary contracts let by companies to maintain DBFO roads. This would give the companies the freedom to have access to those services which they feel would most efficiently be procured from the local highway authorities. We have consulted, on a separate order, under the Local Authorities (Goods and Services) Act 1970, which would permit local highway authorities to tender for sub-contracts let by DBFO companies.

I now turn to the structure of the order. The first article contains the citation, commencement and provision for interpretation. The second article makes clear that the Secretary of State may select which of the functions set out in the three schedules are for delegation, depending on the circumstances of the contract. The third article makes a consequential amendment to Section 6(8) of the 1980 Act which at present restricts those to whom the Secretary of State may delegate his highway functions. This amendment modifies Section 6(8) to ensure that it allows for delegations pursuant to an order made under Section 69 of the Deregulation and Contracting Out Act 1994.

I mentioned that the order in draft was included in the Highways Agency's consultation document. It was distributed widely to local authorities, contractors, consultants, representative bodies and other interested parties and drew a wide range of response. Little comment however was offered on the draft order itself. Only one function then proposed for contracting out appeared to cause concern to one or two consultees. That related to the supply of information and recommendations for planning permission. After further thought, that provision has been withdrawn from the order before the House.

The underlying purpose of our policy is to widen the range of options available to us for managing and maintaining the network. The Secretary of State remains the accountable highway authority, and nothing in the order reduces the range of his responsibilities.

The order would, however, allow us to develop arrangements which could provide a better service to the travelling public through a wider selection of road

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management options. The order under consideration today would help this process forward, and I commend it to the House.

Moved, That the draft order laid before the House on 27th June be approved [25th Report from the Joint Committee].—(The Earl of Courtown.)

1.40 p.m.

Baroness Thomas of Walliswood: My Lords, I welcome the new Minister and apologise for coming into the debate in the gap. I shall therefore not discuss the broader issues which the Minister raised but keep myself strictly to what is before us today.

Basically, we welcome the idea that these maintenance contracts, the Highways Agency contracts, are to be let in road network bundles rather than in county council or other highway authority bundles. That probably makes better sense in terms of the way in which the network is managed and therefore I have no objection and welcome the opportunity for local authority consortiums to be formed to bid for those contracts. I am aware that discussions are already taking place.

With regard to the DBFO element—I shall not be tempted into discussing the whole DBFO approach—I welcome the ability of local authorities to tender for the maintenance part of that ongoing contract. I was interested in the remarks made by the Minister, John Watts, that the contractors themselves wished to have access to the expertise currently situated within the offices of the highways authorities as they are now constituted.

I have two anxieties, one of which I warned the Minister about and the other of which I did not, for which I apologise. The one I did not warn him about is our concern that the process is out of kilter with the response to the then Secretary of State's speech to the County Surveyors Society. Dr. Mawhinney at that time raised the possibility of redesignation of the road hierarchy and by implication the allocation of duties of highways authorities vis-o-vis those roads to make the system easier to understand for the consumer or the driver. We have no objection to that approach. However, given that the Institution of Civil Engineers is still discussing the matter, I wonder whether the two processes will not conflict to some extent.

The second matter which I raised by fax with the Minister concerns the interaction of this order with the implementation of CCT on local government services connected with highways. Local highways authorities are in the process of taking decisions regarding the 65 per cent. "contracting" side of their business. Those decisions will affect many members of staff. They will be in the position of not knowing whether they are able to retain the 25 per cent. of work currently accounted for by the Highways Agency contract, at least in some authorities.

Depending on the timing of each process, there is a danger that the implementation of the new orders may pre-empt decisions as to the correct option for organising the 65 per cent. of contracting-out work. The Minister will understand that there is a range of options

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open to local authorities when faced with that 35/65 split. Alternatively, the process of contracting-out by local highways authorities may be affected in mid-process by the operation of the new order. What is the Government's view? In particular, suppose the solution adopted by local authorities is to "sell" their contracting departments to a given private sector consultant and that company does not obtain the Highways Agency work; it will lose 25 per cent. of the work that those people represent. It is likely that those engineers may be moved from one company to another. How will the TUPE operations work under that complicated situation?

1.44 p.m.

Lord Williams of Elvel: My Lords, I congratulate the noble Earl on his first appearance at the Government Dispatch Box and on his presentation of the order. I have no intention of dwelling on the policy underlying the order. The noble Earl knows well what our views are, both on CTT and on DBFO.

I have three specific questions to put to the noble Earl. First, he said that it was the Government's intention to procure on "some" sections of the network this new arrangement. I should like to know what the criteria are by which those sections will be chosen; what the procedure will be; and how it will all work. Secondly, he said that the Secretary of State was "formally" responsible for the network. That is true. But I am sure he will recognise that with the advent of the Highways Agency there is a certain distance now between Parliament and the management of the network. Indeed, if I were to table a Question to the Secretary of State I would be referred to the chairman of the Highways Agency, which is a Next Steps agency. Can the noble Earl say how the Secretary of State proposes in the future to maintain his responsibility for the network? Will we be shuffled off again into questions about the agency, passed on to the chairman? What is the Secretary of State's responsibility? Can the noble Earl put that in clear terms?

My third question relates to the CCT and whether it is value for money, value for quality, or value for quality and money. Can the noble Earl give an assurance that where they go out to test, quality will be taken into account as much as money? There is an abiding suspicion that the whole government programme is designed to save money at the expense of quality.

Finally, I cannot see any of this improving the service to the poor old motoring public, who have been bashed about enough by this Government. I hope that the noble Earl will give us a few reassuring remarks in that regard.

1.47 p.m.

The Earl of Courtown: My Lords, I listened to what was said about the order with interest. First, I thank the noble Lord, Lord Williams of Elvel, and the noble Baroness, Lady Thomas of Walliswood, for their kind words and their courtesy in giving me prior notice of their concerns.

The order is necessary to allow us the opportunity to bring competition and the possibility of private sector efficiencies to bear on the provision of road management,

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as we have done so successfully in other sectors of life. In this policy the delegation of functions to the private sector maintenance agencies and DBFO managing contractors is important. Without that it would not be possible for private sector managers to show properly what they can do. The managers would have to revert to government to carry out a range of maintenance and improving functions, yet our local authority agents are not confined in that way.

This order allows private sector bidders to have the same degree of control over their operations as the present agent authorities have over theirs. That will be more efficient for private sector operations and I expect those efficiencies to be reflected in pricing.

Bidders for both new-style agency agreements and DBFO projects will be able to submit their proposals in the knowledge that they will have as much control over their operations as is practicable. The playing field between such bidders and local highways authorities will be levelled. Those arguing for the status quo are arguing for a statutory monopoly, which the local highways authority for any specific area now enjoys. Such monopolies are defined by the administrative boundary and not by the operational requirements of the task.

The noble Baroness raised the subject of transfer of undertakings protection of employment regulations. For the DBFO new agencies' arrangements, we have been consistently saying to bidders that they must satisfy themselves, in making their bids, as to whether they would be liable for costs implied by the TUPE regulations. That is not a subject on which I can offer advice in the abstract.

The noble Baroness mentioned the subject of a review of the network to be carried out before new agency arrangements are introduced. There are areas of overlap between the two issues, but they do not need to be carried out consecutively. I am content for them to run in parallel. The Highways Agency will consider the proposals in full knowledge of the points made during consultation.

The noble Baroness also mentioned the contractual arrangements with design services. So long as we have an agreement with an agent authority it would be held responsible for activities carried out under that agreement. Even if it had externalised any ensuing contractual issues between the agent and its consultant it would be for it to resolve.

The noble Lord, Lord Williams, asked for information relating to the sections and routes. Those are concerned with the DBFO projects. Initially this will cover 6 per cent. by mileage of the network in England and covered by the first eight contracts.

The noble Lord went on to mention the relationship of the Secretary of State with these new arrangements. For the vast majority of roads—well over 90 per cent.—the local highway authority (the county council, the metropolitan district council or the London borough council) is responsible. Under the Highways Act 1980, however, the Secretary of State is the highway authority for the motorways and trunk road system. Under Section 6 of the Act he is empowered to delegate functions to the

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local highway authority; notably, day-to-day management and maintenance. In effect it acts as his manager and can use its powers on its roads. The weakness of the system is that Section 6(8) has the effect of making a local highway authority the exclusive delegatee. That is the root of the problem since at present the Secretary of State has the choice either of exercising those functions directly or having them exercised by another highway authority.

Under the proposed arrangements the Secretary of State would remain the highway authority. He would remain accountable for the service rendered by the motorways and trunk road system. Nothing in these proposals changes or reduces that responsibility. The proposals are rather about how he can exercise the function. The essence in the case of both DBFO and of the more widespread agency agreements is that the order would allow him the choice of method. In contract terms he would be the principal or client but his public responsibilities remain as before.

The noble Lord, Lord Williams, asked how we propose to secure better value from road management and maintenance. At present we can compare spending rates among agent authorities but in each case we have a monopoly supplier in the form of the local highway authority. While there are various codes of practice they are not terms of contract and much latitude is available to the local authority road manager. Trunk roads in each area tend to be treated as if they were local authority roads. In practice standards of provision vary. Our case is that we should seek greater consistency and reliability of performance. In the DBFO contracts, and in the new style agency agreements as they develop, the Highways Agency must set out a series of client requirements against which bids will be invited. We are negotiating the DBFO contracts and that gives us the opportunity to explore with bidders the merits of different approaches. I am sure that the local highway authorities have much to contribute to this thinking. Once signed the contract will be monitored and enforced by the Highways Agency. Since we shall be paying explicitly for a service we shall see that that service is actually rendered. In the case of DBFOs the link between company revenue and traffic flow ensures that the company itself will have an interest in the reliability of its service. Finally, such arrangements must remain flexible to allow for continuing technical improvements, so the contracts will contain procedures to adjust the service required in the light of such changes.

With regard to the effect on the travelling public, much attention is given to the merits of road building and we hear various views in this House and elsewhere on those merits. We believe in targeting our spending on particular problems in the national trunk road and motorways system but the average driver will be concerned rather with the reliability of the existing system, on which he or she will have expectations of consistent performance. Our new arrangements seek greater reliability and consistency. Perhaps I may give two examples. We hear much about the impact of roadworks on the availability and reliability of our roads. A formal contract which gives the road manager an incentive to minimise the time taken for roadworks

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would clearly benefit the driver. We do not, as it happens, think that the present day agent authorities render a bad service but rather that greater concentration on routes rather than county boundaries or parity of treatment with local roads would permit us to offer a better service.

My second example concerns driver information. If we are to get better value out of our existing roads one key element will be our ability to improve the information to drivers. Here again it will be better to consider our network on a broader geographical basis than present arrangements permit. I think that we might distinguish these aims from the question of who provides the service. As I hope we have made clear, we have no difficulty with local authorities, perhaps in consortia, bidding for the work either from the DBFO companies or directly for the new agency contracts. But we consider that the travelling public can only benefit from introducing competition combined with subsequent contract monitoring. I think I have covered all the issues raised. I shall read Hansard. If I have missed anything I shall write to noble Lords.

We have some of the most heavily trafficked roads in Europe so we need to be flexible to meet the challenges and to be responsive to customer needs. We are continually working to ensure that we can meet increasing demands on our national road network in ways which can provide better value for money and which are more efficient for the travelling public. This order will allow us to extend the range of options we have for managing the network. We would no longer face, as now, a "Hobson's choice". The order will not only allow us to delegate a range of functions but to select which functions are suitable for the particular circumstances. I believe that the order will play a vital role in helping us to achieve better management. I therefore commend it to the House.

On Question, Motion agreed to.

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