Official Report (Hansard)

COMMITTEE FOR HEALTH, SOCIAL SERVICES AND PUBLIC SAFETY

OFFICIAL REPORT
(Hansard)

Strategic Investment Board

17 January 2008

Members present for all or part of the proceedings:

Mrs Iris Robinson (Chairperson)
Mrs Michelle O’Neill (Deputy Chairperson) 
Mr Thomas Buchanan 
Rev Dr Robert Coulter 
Dr Kieran Deeny 
Mr Alex Easton 
Mr Tommy Gallagher 
Mrs Carmel Hanna 
Mr John McCallister 
Ms Carál Ní Chuilín 
Ms Sue Ramsey

Witnesses:
Mr David Gavaghan ) Strategic Investment Board (SIB)
Mr Leo McKenna )

Mr John Cole ) Department of Health, Social Services and Public Safety
Dr Jim Livingstone )

The Chairperson:
I welcome Mr Leo McKenna and Mr David Gavaghan of the Strategic Investment Board (SIB); Mr John Cole, chief executive of the Northern Ireland Health and Social Services Estates Agency; and Dr Jim Livingstone from the Department of Health, Social Services and Public Safety.

Mr Leo McKenna (Strategic Investment Board):
SIB acts as a bridge between the public and private sectors. It works with Departments and agencies in Northern Ireland to help them to achieve a faster delivery of major public infrastructure projects. We provide commercial expertise to our colleagues in the Department of Health, Social Services and Public Safety and we act as a bridge between the public and private sectors. Much of our work is ensuring that the public sector is in good enough shape to deliver its budget and that there is sufficient market interest so that supply meets demand in the correct structure. We have done a great deal of work to attract world-class companies to Northern Ireland, which I will speak about later.

We have played an important role in stimulating wider market interest to promote competition: the greater the competitive tension that we can create in the market place, the better the deal for the patient and taxpayer. Many procuring authorities in health in various jurisdictions probably do not do that as well as they could. We play a strong role in helping the Department by ensuring sufficient competitive tension from the market.

We also provide strategic programme and project management expertise for the Department: the backgrounds of many of my colleagues, some of whom are here, are in the fields of project management and programme management, so there is a great deal of experience and expertise to offer in those areas.

SIB has an opportunity to drive a multi-agency approach: too often in the past Departments and agencies did not work together as holistically as they could have.

A good example is some of the large-scale projects that need planning permission: an application will take as long as the various agencies take to process it. First, the SIB, with the Department and Health Estates, brings all the agencies with responsibility for planning to a table. Before leaving that meeting, we draw up an action plan by which the various agencies will have acted by a certain date. That truncates the planning process to a large degree; the work at the Ulster Hospital is a good example. Outline planning permission took three months, as opposed to the two years that it might have taken in the past. We have added value by bringing people together.

We have also introduced the promotion of social and economic sustainability in the community. Large organisations from the private sector have, at times, come into the procurement sector saying that they will create jobs and add to the local economy, blah, blah, blah, but they have not delivered. We have introduced a scoring mechanism to the Enniskillen hospital project that will make organisations state how many long-term jobs will be created for the local economy. It is the first time in the UK or in the Republic of Ireland that such a mechanism will be used in any sector, and it will promote social and economic sustainability in the procurement process.

Without labouring the point, I will talk about our key relationships. Dr Jim Livingstone is here from the Department, and John Cole is here from Health Estates. The three of us work closely every day, and we have a strong, positive professional working relationship. We have a strong programme management mechanism that is bearing fruit.

Mr David Gavaghan (Strategic Investment Board):
In its relationship with the Department and with Health Estates, the work streams that SIB is engaged in are as multifaceted as anything that we are involved with across the spectrum of our activities. That is positive, and there are huge opportunities in those work streams. Emerging from that is the connection to health, and Leo would love to talk about that for at least an hour, if he were allowed. The regeneration aspect of our submission covered some of the points on the huge opportunities that exist. Considering the six investment pillars in the draft investment strategy, working with the Department and with Health Estates is a multifaceted and positive environment within which we approach our engagement with the Department.

I will mention two of the many value-added areas. When we first worked with the Department there was significant bureaucracy in the level, number and size of business cases. We have streamlined that so that we have more focus on strategic positioning, and that has lightened the load for the Department and for Health Estates.

Mr John Cole (Department of Health, Social Services and Public Safety):
It has allowed us to review the programme in a more strategic way and to get on to larger packages of delivery rather than having numerous processes coming through the business case methodology. Jim and I have been working with people in the Department of Finance and Personnel (DFP) to simplify that, and we have made progress. Developing a strategic view of a business case instead of getting bogged down in minutiae that did not deserve the bureaucracy or time that were spent on them has been of significant benefit.

Dr Jim Livingstone (Department of Health, Social Services and Public Safety):
Only five or six years ago, the Department’s typical annual capital budget was in the order of £70 million, and the projects that were handled were relatively small or piecemeal and spread over long periods. The Department’s annual capital spend now is more than £200 million, so the scale has increased enormously in a short time. We now handle a programme of small, medium and large projects, which are among the biggest on the island.

Despite the scale and complexity of such programmes, the strength that we derive from our partnership — strong commercial and project-management expertise and the expertise that has resided in the health sector for many years — means that we can deliver much better for the taxpayer.

Mr McKenna:
On the little matter of scale, what we are doing now is unrecognisable from what we were doing five or 10 years ago. In the south-west alone, there are three procurements of more than £400 million. That is significant. The Enniskillen acute hospital project is the largest ever to have been carried out in the country’s history. Through a significant step change, we are in a different place from where we were five years ago.

Mr Gavaghan:
As Leo said, social and economic sustainability is vital. Perhaps the Committee would like to focus on them

In summary, the SIB feels positive. It probably sounds as though we are singing from a hymn sheet, although the Committee will test that as discussion continues. Thank you for giving us the chance to make our presentation.

Ms Ní Chuilín:
I have three questions, which I will try to keep succinct. The SIB briefed that there would be 10 acute hospitals; so far there is only one in the south-west. How has that come about? Why were the projections in the infrastructure strategy for 2008-11 so unrealistic?

What is the position of staff under PFI and PPP arrangements? Will soft facilities management (FM) services from the trades union sector be brought into PFI arrangements to meet the Treasury’s value-for-money test?

SIB was set up under investment strategy 1 to deal with regional disparities. Did SIB conduct an equality impact assessment into draft investment strategy 2? Those are three easy questions to start. I am sorry about that.

Mr Cole:
Northern Ireland has more than one acute hospital. The next phase in the £100 million development of a critical-care building at the Royal Hospitals site has just been let; at the Ulster Hospital, £100 million of work has been carried out, and I believe that the Chairperson attended the recent opening of its new maternity unit; a new critical-care block is also coming up fast on the Ulster Hospital site; major regeneration of Altnagelvin Hospital is being carried out; redevelopment at the Downe Hospital in Downpatrick is on site at £63 million; and development in the Sperrin Lakeland Health and Social Care Trust’s area is also in planning and is almost at the preferred bidder stage. It is hoped that that scheme will be on site during 2008. The Omagh hospital is fast advancing, and formal procurement will begin later in 2008.

I could continue. A huge number of projects is under way. At present, almost £300 million is being spent each year in addition to PFI funds. On the primary care and community infrastructure side, the Committee will have noticed that primary-care facilities and major community-treatment centres are being built — for example, at the Foster Green Hospital. Three are already complete. The centre at the Grove in Belfast is about to be completed.

Procurement has started and architects are being appointed later in January — one for each trust — to carry out a programme of primary-care projects in each of the trust areas, which will then flow out as part of the primary-care initiative. That is not an exhaustive summary of our work; however, it shows that there is not just one project but several huge projects throughout the country.

Ms Ní Chuilín:
I am sorry; I did not make myself clear. I am aware of only one project in the south-west that will make use of local labour. You mentioned it in your presentation. You said that apprenticeships would be introduced; that there would be more opportunities for people to become involved, and that there would be more local employment; it was not a one-size-fits-all project. That is the only one of which I am aware.

Mr Cole:
Are you saying that only one project involves apprenticeships?

Ms Ní Chuilín:
Yes; in which local labour is involved.

Mr Cole:
All our schemes involve local labour.

Ms Ní Chuilín:
The private finance initiative projects in the Royal Victoria Hospital —

Mr Cole:
There are no PFI projects in the Royal Victoria Hospital.

Ms Ní Chuilín:
One of the biggest criticisms was that when the PFI model was introduced from England and applied here local people did not benefit.

Dr Livingstone:
That was a feature of the past. There is no question that, too often in the past, models of all kinds were developed elsewhere and simply transplanted into Northern Ireland. The Department of Health, Social Services and Public Safety, the Strategic Investment Board and the Northern Ireland Health and Social Services Estates Agency work in partnership to ensure that whatever may be done elsewhere, we will do it better here. We have managed and structured PFI projects very differently; Leo referred to some very innovative projects. We are determined not to repeat others’ mistakes.

There were PFI projects in the past in the Royal Victoria Hospital. However, considering PFI or PPP projects in future, we will make use of the best models, but we will tailor them for Northern Ireland. It is not good enough to transplant someone else’s ideas without making sure that they work for us.

Mr McKenna:
The evidence shows that what we are saying is true. We have developed our own procurement and delivery processes; we have not slavishly adopted what has happened elsewhere — the Department of Health in England and the various health and procurement delivery agencies in the Republic of Ireland have visited us to pick our brains. Our models are recognised as best in class. We have worked hard to avoid slavishly adopting the mistakes that were made elsewhere, and we have created localised solutions for local people.

Dr Livingstone:
John Cole and his colleagues in Health Estates developed the exemplar design process, which had never even been thought of elsewhere. That approach is now advocated by the Treasury. At last, we are showing the rest of the world how to do it.

Ms S Ramsey:
Does the contract for a scheme stipulate local apprenticeships?

Mr Cole:
Yes; for all PFI schemes.

Mr Gavaghan:
It goes beyond that: the procurement board has worked with the Equality Commission for Northern Ireland and has agreed that those commitments should be adopted across our infrastructure programme. I will be happy to discuss that further, as significant progress has been made.

Mr Cole:
DFP and Health Estates have been working to create standard clauses, because the previous clauses did not work. Under the terms of a two-year contract, a contractor would receive a grant to take on an apprentice but did not have the time to train them under the contract. Once the contract ended, apprentices were let go.

Ms S Ramsey:
Is that provision definitely in the new contract?

Ms Ní Chuilín:
It is now; it was not before.

Mr Cole:
It is in the Enniskillen contract.

Ms S Ramsey:
It is —

The Chairperson:
Please speak through the Chair.

Ms S Ramsey:
I am sorry, Chairperson. One of the trades unions’ concerns was that such provision was not included in the original contract.

Mr Cole:
We now require contractors to show us their proposals for apprenticeships. As Leo said, that is part of the scoring of the contractor assessments.

The Chairperson:
As long as we have it on good authority that that provision is included in the contracts, it addresses members’ main concerns.

Mr Cole:
It will also be in the other contracts.

Ms Ní Chuilín:
I am sorry, Chairperson; I have one more question. You said that you are not responsible for the policies of the Department of Health, Social Services and Public Safety, and nobody would expect you to be. Does the Treasury’s PFI value-for-money test include soft FM services — staff costs, for example? Will such services be privatised? Workers employed under PFI schemes are the lowest paid in the health sector.

Dr Livingstone:
Our policy on soft FM is in accordance with Treasury guidance, although we modified that guidance recently in the case of Omagh and the south-west. If a trust sees potential value for money in including soft FM, that proposal must be the subject of a value-for-money test in its own right to decide whether to put it into the scope of the procurement process in the first place. Having done that, a second value-for-money test is carried out when the bidders submit their bids. John’s team will oversee the procurement aspect.

The inclusion — or otherwise — of soft FM and any transfer of staff is subject to Treasury guidance. In the case of hard FM staff, that would include transfers under the transfer of undertakings regulations (TUPE) and under comparable pension provisions. However, over a year ago we adopted the retention-of-employment model, so soft FM would remain in the public service but would be seconded to a private-sector operator. Recently, cleaning services were excluded from the scope of such procurements. In all other respects, the policy is entirely in accordance with Treasury guidance: the trust is required to undertake value-for-money assessments, both at the initiation of procurement and also when bids are being assessed.

Ms Ní Chuilín:
My last question is about the equality impact assessment and the draft ISNI 2 strategy.

Mr Gavaghan:
That subject has been fully discussed. We have engaged fully with the Equality Commission throughout the draft investment strategy almost from the outset. The commission is fully aware of the work that we are doing upfront.

Ms Ní Chuilín:
With respect, the answer is either yes or no. I understand that there are processes, but either an equality impact assessment was carried out or it was not.

Mr Gavaghan:
We have conducted ourselves entirely in line with best practice. My understanding is that a discussion on the matter took place over the past couple of days.

Ms Ní Chuilín:
Fair enough.

The Chairperson:
I do not think that we can examine that matter in much detail at the moment, for obvious reasons.

Mr Buchanan:
Although a substantial sum is being spent in the south-west, I have reservations about the use of PFI. You made it clear that you believe that all PFI projects are value for money. What procedures have you put in place in the south-west to ensure that, over the next 20 or 25 years, the bulk of money will be spent on service delivery rather than on paying money back? The big issue for the south-west is service delivery. We have been arguing that case for several years, as there has been a failure in service delivery.

The concern about the PFI projects that are coming to the south-west is that when that area receives its annual budget allocation most of it will go towards paying off the money owed rather than on service delivery. What guarantees are there that that will not happen? How long is the contract? Is it for 20 years or 25 years? When will it be cleared up? We must ensure that it will not be a burden to the people of the south-west.

My understanding is that SIB is overseeing the primary community care infrastructure initiatives. Is that being funded through PFI, and, if so, how much is being invested? How many centres are being built, and how long will those projects take to complete? Furthermore, is it true that the entire primary community care infrastructure scheme has run out of money?

Mr Gavaghan:
Forgive us if we seemed to be suggesting that PFI has always provided value for money; that is not the case, and I am sorry if we have given that impression. It is clear that, specifically in health, there has been significant review. Members will have seen many decisions taken on significant projects. If members are interested in the specifics of the Enniskillen project, it would be worthwhile for us to take you through the whole business case process. The process is extremely thorough, and a systematic analysis is carried out to find the best procurement route.

An earlier question suggested that there may be a view that the Strategic Investment Board is the proponent of PFI. I am sorry if people are holding that view. Our job is to find the best procurement route. If we get it right — and that is what we are all working towards — then there will be great comfort in ensuring that those important buildings in which the tangible benefits of healthcare and frontline service are being seen will be properly maintained throughout the period in which they will be used. John Cole is the expert on how buildings should be maintained.

Throughout the process, we are always trying to ensure that the buildings will be properly maintained, so that the highest quality of healthcare will be provided not only during the first two years but throughout the 25 or 30 years of the contract. Mr McKenna may wish to comment on this particular contract but, obviously, negotiations are ongoing and a degree of confidentiality applies. A competitive process is taking place and there are some important issues involved. We would be more than delighted to take members through the process.

The Chairperson:
I was about to suggest that it might be a good idea to allow Committee members who represent the area to set up a meeting to talk specifically around the issues concerning the PFI. Obviously, there is a great deal of concern, and I am aware that confidentiality must be respected.

Mr Buchanan:
I am concerned when Mr Gavaghan says: “If we get this right” and “that is what we are all working towards”. The big question — and this issue worries me — is what happens if the Strategic Investment Board does not get it right. Can the board guarantee that it will get it right?

Mr Gavaghan:
The history of any form of infrastructure delivery is littered with some mistakes but, generally, with great successes. I hope that the Committee can get some sense that the Strategic Investment Board is intent on getting it right and we can take members through the process of how we are doing that. However, it would be a foolish person who says that he or she gets it right all the time, and I will not be that brazen. We can take members through the process to the point where they will recognise that a solid, highly professional job is being done. To answer the question, we will get it right.

Mr Cole:
The final decision on whether to proceed with PFI for the Enniskillen project has not been taken. That can happen only when a final value-for-money business case, based on a full sensible analysis, has been made. Unless that can be proven, the project will not be signed off and the region will select an alternative procurement route.

Dr Livingstone:
It would be fair to say that the process incorporates many checks and balances. I would not want to be personally responsible for saying yes or no to the project. Before a project goes to the marketplace, it would be subjected to a rigorous, value-for-money scrutiny. At that stage, the extent to which it may offer value for money is projected. Hard evidence from the marketplace is used to make a case that must be scrutinised by the Department and its advisers, Health Estates, the Strategic Investment Board and the Department of Finance and Personnel.

We would then move into the procurement phase when on at least two occasions, during selection of the preferred bidder and at financial close, exactly the same level of scrutiny would be brought to bear by the Department’s experts, Health Estates, the Strategic Investment Board and the Department of Finance and Personnel. On top of that, there are the gateway review processes, in which we invite people from outside to examine projects to ensure that they are being well managed.

It is not the case that we are in a room somewhere, hidden from gaze, taking rash decisions. In fact, if there is one complaint from the private sector, it is that public-sector analysis often takes too long. That is because we are very determined that at each stage of the process we must get it right — or as close to right as possible.

Mr Buchanan:
Is it not, therefore, premature to start work on a site in Enniskillen when the deal is not yet secured?

Mr Cole:
Irrespective of the procurement methodology, whether it is through PFI or not, we are committed to building a hospital there. The Department’s policy is to deliver a hospital on that site in Enniskillen. Therefore, the work that we are doing is contributing to a solution, irrespective of whether it is a PFI or a publicly-funded solution. The fact that work has started is an indication of the Department’s commitment to the project; it is not a false start.

To date, the PCCI programme has been delivered through non-PFI methods, and seven schemes are already up and running, all of which are all being funded. Another two or three will start in the same way over the next year. The PCCI process gives us the option of deciding whether to use a third-party development type of PFI, which has a less onerous process than traditional PFI. However, that will be determined by the nature and availability of funding and by value-for-money and affordability issues.

What we have is a flexible palette, which allows the Department, the Strategic Investment Board and Health Estates to decide the best methodology at any point in time that will allow us to deliver programmes as quickly and effectively as possible on a value-for-money basis.

There is no predetermined commitment that the programme will go one way or another. However, there has already been significant expenditure on PCCI, and more is underway. We have not had as much money as quickly as we wanted, but there will be progress on programmes in all parts of the Province in the next year.

Mr Buchanan:
Therefore, there is money in the scheme; it has not run out?

Mr Cole:
No.

Dr Livingstone:
The Committee must appreciate that PCCI is a major programme, which will transform healthcare services in Northern Ireland. There will be 35 health and care centres, and that is not all. There are many other items, such as caring-for-disability units, mental-health units, children’s homes and so on.

It will take a 10-year programme to provide the 35 health and care centres across Northern Ireland. During the CSR period, with the capital that we have, we cannot start as many projects as quickly as we would have liked. However, five projects will definitely start. In fact, there is a good chance that others will start at the latter end of the CSR period.

The Chairperson:
Thank you for that comprehensive response. I still think that it would be a good idea to arrange to about the new hospital project if members from the constituency wish to do so.

Mr McKenna:
I would like to give members more comfort about the process and about how decisions are made. One key element that we did not mention earlier is the role of the trust and its board. The trust board will take the ultimate decision on whether a project can proceed under PFI, or whether PFI represents value for money. The board will take advice from people such as Mr Cole and me, and its decision will go, ultimately, to the Department of Health, Social Services and Public Safety and the Department of Finance and Personnel for determination. As Dr Livingstone said, there are many levers and many layers of assurance, if you want to call them that.

To make it crystal clear; the point at which we ask whether a project is going to provide value for money in PFI terms — in other words whether it should be a PFI project or whether it should it go through the traditional procurement route — is when the full business case is presented. Such a view is not taken when the outline business case is being presented. The outline business case does just what it says on the tin; it is an outline, and it states what we think the project looks like, what we think it will cost and that we think that there is merit in looking at a certain type of procurement. Having gone through that process, we will not be afraid to change tack if it does not stack up as value for money.

As regards PCCI, we have developed, with Health Estates, a nimble, duel-fuel approach. If we are in a capital-poor environment we can look towards funding projects through revenue, and if we are in a revenue-poor environment we can look towards funding them through capital. We do not want to become a hostage to fortune, and we think that that is a prudent, professional and commercial view to take as regards budget management. There is always tension between budget management and delivery, and we have to be as nimble as possible. This is a very innovative approach. In England, Local Improvement Finance Trust (LIFT) schemes do not have that flexibility. As I have said, they have taken a one-size-fits-all approach.

The Chairperson:
PFI has had fairly bad press, particularly on the mainland, and there have been concerns about what state buildings will be in at the end of 25- or 30-year contracts and whether there will be a guarantee that they will be in a good state at that point. If there is a chance that they could be in a poor state, we would get no advantage thereafter. I suggest that Mr Buchanan liaises with other members and sets up a meeting to discuss that issue.

Mr Gallagher:
I thank the witnesses for their presentation. I am from the Enniskillen area, and the new hospital to be built there will be the first big PFI project in the area. We all need to bear in mind that many mistakes have been made on PFI projects. We are getting involved with the huge corporate sector, and while I live in the real world and realise that its involvement is necessary, there is no room for complacency: the corporate sector is involved in order to make a profit. The track record shows that.

In England, the corporate sector squeezed more and more money out of the public sector before getting its way. As that has been the case before, we should take a healthy approach towards eliminating problems.

I recently submitted a motion regarding PFI projects to the Business Office, and I hope that it will be put to the Assembly. I did so because of the mess that was made with Balmoral High School, in which a developer ran off with a prime piece of development land that was in public ownership before the project was signed up to. I want answers from the Department of Education, our own Government or whoever was managing it at the time — whether under local or direct rule.

As regards signing off on projects, I want to know who will be authorising the Enniskillen hospital project. Where is the buck going to stop? Will it be at the Office of the First Minister and deputy First Minister, the Department of Health, Social Services and Public Safety, or will it be someone else? We need to know that.

I have spoken to union representatives and to representatives of the Western Health and Social Care Trust. A couple of points arose from those meetings. It seems to me that different trusts take different approaches, which, at such an early stage, is worrying. As I understand things, the Western Health and Social Care Trust has taken a different approach from that of the Belfast Health and Social Care Trust and some others.

I presume that when sustainability is being discussed, it is in the wider sense, rather than the issue being just about the buildings and their contents. A contract is currently being negotiated for the hospital in Enniskillen, and I have been told that it will give the contractors the option of having food flown in from outside the country. Therefore, I am a bit confused by what I am being told today. The first time I met with the representatives from the trust I was angry about that point, and I asked them what was going on with respect to the people and services in this country. I could not believe that they were putting the issue up for negotiation. The trust said that negotiations were at a delicate stage and that I should not mess things up.

About two months ago, when I met representatives of the Sperrin and Lakeland Trust, they told me that they had changed their position and that the bidders would now have the option of pricing the project with or without people and services — in other words, that the trust would be responsible for people and services. That information came from the trust, but what has been said today suggests something different. That is an example of the type of thing that must be sorted out, and about which there is a high level of concern.

In their evidence to the Committee, UNISON representatives expressed concern about the affordability gap — I assume that the witnesses will know what they meant by that — of £20 million at the Enniskillen hospital, which would mean that it would be possible for a successful bidder to tinker around with parts of the design, cut storage space or corridors, and generally manoeuvre around the situation. Having heard the union’s opinion, I am glad that we are going to have a chance to discuss and hear your thoughts on the matter.

In your submission, you mentioned working with consultants. What consultants have you used on the Enniskillen project; how much have you spent on those consultants, and were their services sought through a tendering process? That covers most of the key points that I wanted to raise.

The Chairperson:
If I were Mr Speaker, I would long ago have instructed you to ask the question — I have been patient. [Laughter.]

Mr Cole:
I will deal with some of the factual points, and Dr Livingstone can pick up on the others, followed by some comments from Strategic Investment Board representatives.

The first question was about where the buck stops. As Mr McKenna said, the process is directed via the trust board and is based on advice from Health Estates, the Strategic Investment Board and their advisers. The trust takes a decision, which is referred to Dr Livingstone’s section in the Department. His section, in conjunction with the rest of our advisers, including people from Health Estates acting in a policy support role, considers the documents and makes recommendations, or not, to the permanent secretary, who then refers the matter to the Minister. Currently, I do not envisage this process going beyond the Health Minister, although —

Dr Livingstone:
For a project of this size, the full business case would be referred to the Minister of Finance and Personnel. The Strategic Investment Board and the Department of Health, Social Services and Public Safety would sign off on the project, and the Department of Finance and Personnel would also be required to endorse it. Ultimately, the Department of Health, Social Services and Public Safety — represented by its accounting officer or, politically, the Minister — is accountable for ensuring that value for money is delivered on all aspects of its expenditure. Therefore, the buck stops with the Department.

Mr Cole:
As regards the affordability gap; in Northern Ireland, unlike England, part of the process involves setting clear and targeted affordability limits, and for their bids to be considered, bidders must produce bids that are within those limits. Some of the debate to which the member referred may have been in response to feedback that bidders were struggling to adjust their prices to the levels set, which they must achieve before we can consider their bids to be value for money. We expect to receive three bids that will be below the level that we have set. The fact that bidders will have managed to lower their prices demonstrates some of the negotiating power and strength of the team.

In addition to affordability limits, we have an absolute threshold on a project’s quality, which is part of the exemplar scheme to which Dr Livingstone referred. We will not consider projects unless they achieve that quality threshold. Prior to receiving any formal bid on 14 February, we are as sure as we can be that —

Mr Gavaghan:
I wish to make a related point. The point about profits is right; however, we are benefited by the fact that — and we have outlined how this is an extremely large capital project with important social consequences — the people with whom we have engaged are international players working alongside local contractors, and a huge amount of work has been done in order to ensure that the delivery of this project is properly structured and understood by all the private-sector participants. On their side, there is a huge risk.

In addition to which, we have travelled with the international contractors to see what projects they have delivered elsewhere, and anyone here would be welcome to join us in doing that. Therefore, we are not talking about it is not the promise of something illusory; we have seen what is being delivered across the water and in the international marketplace. The contractors have delivered very big projects across the world, and we should be reassured by that. It is true that they are focused on profit, but the job of the Strategic Investment Board — working alongside our colleagues John Cole and Jim Livingstone — is to make sure that we are working with people who we know can deliver. The Committee should take great comfort from that, and if anyone would like to see the contractors’ work then we would be happy to arrange that.

Mr Mc Kenna:
To reassure the Committee, because members may not be as close to the work as we are; the Strategic Investment Board is in control of the tendering process; it is not the bidders. If we are presented with bids with which we are unhappy and which we feel do not meet our commitments, then they will not pass go and they will not collect their £200. We are in control — we set the bar, and they have got to reach it. That has been made abundantly clear to the contractors — quite forcefully — throughout the process. We have been talking to the contractors for almost a year now, and if they do not know what we want after a year then we have not got the right partners. We are not afraid — we are in control. We know what we are doing, we will advise on the proper decision, and we will inform the accounting officer and the relevant people.

Mr Cole:
The other issue referred to was catering. We have a mandatory bid which excludes all soft facilities management. Therefore, the first bid is just for the building and for the hard facilities management, which would exclude catering and all of those other soft services. The bidders are allowed to make a variant bid to include other soft facilities management services, which, on the basis of a ministerial decision, excludes cleaning. However, the contractors have the option to put forward proposals as to how they would meet the trust’s clearly specified requirements in relation to the quality and standards of catering, and one of them may submit a bid on that basis. A bid to provide soft facilities management services would be considered against a public-sector bid solely on the basis of a value for money analysis, which would include quality and all of those other aspects.

Mr Gallagher:
Is that a quite separate bid?

Mr Cole:
There are three formal bids for the building and the hard facilities management, and then there is a variant bid, which they may not actually submit, but which the process allows them to submit if they so choose. Therefore we will have three bids for the building and the hard facilities management and three potential bids for the catering and other soft facilities management, excluding cleaning.

Mr Gallagher:
If you were to throw out one of the bids would that prejudice any of the others?

Mr Cole:
No; that is why the process is structured in that way — so we can have the option to exclude.

Mr McKenna:
That is another example highlighting how we can arrive at a local solution. We did not say that contactors could only bid for the total package — we said that they could bid for the building and the maintenance only, but that if they felt that there is value in it for them, and us, they could also present a soft facilities management proposition. Therefore, rather than slavishly adopting procedures from elsewhere, the flexibility we have shown has given us all a better chance to achieve better value for money.

Dr Livingstone:
As regards quality; as Mr McKenna has said, we are running the programme, it is not the bidders. We are not going to change our minds about our requirements — the contractors have to deliver quality. During the assessment process, we put a much higher premium on quality than on price. We are very determined that we will get the product element of the service.

As regards affordability, we will not let a project go to the market if it is not affordable to the Health Service. We have made that judgement by looking very carefully at the projected income of the trust as well as looking at the wider context of the health budget. For some trusts, it would clearly not be affordable. However, in a PFI case, we are compensating for the fact that there is a call on revenue and not on capital in the conventional sense. Therefore, affordability is very much to the fore for the Department, and obviously for the Minister. We are not going to let a project go to the market, let alone sign a contract, if it is not affordable.

Mr Cole:
I have one final comment on the point that was made about different trusts having different approaches. Procurement policy is led by the Department, and trusts are required to comply with that policy. What we have done in Enniskillen represents our best-policy approach to best practice with regard to PFI.

We also have standard best-policy procurement arrangements for public capital projects. Trusts are required to work through the Centre of Procurement Expertise (COPE), which is Health Estates. We do not allow different procurements to happen in order that they comply with policy as authorised by the Department. The Committee may have heard about different trusts taking different approaches. Ultimately, the test is when the project happens. Trusts would then be using standard contracts, procurements and best practice as laid down by the centres of expertise, the Department and the policy on those issues.

Mr Gallagher:
When do you expect the Enniskillen project to be done and dusted?

Mr Cole:
We expect to receive the three formal tenders on 14 February, and there will then be a period of about two and a half months in which to determine the winner — so, it will be St Valentine’s Day. [Laughter.]

The Chairperson:
A red-letter day for someone. [Laughter.]

Mr McKenna:
There was another question for us to answer, and it was about consultants. For projects, consultants are employed by trusts as advisors. A trust would have a project team, and consultants would be employed to advise the team, perhaps in commercial, technical and legal areas in which the trust does not have the requisite in-house skills. Procurement of advisers is arranged by individual trusts, so I cannot answer the question directly. If members would like us to follow up that point with the trust, we would be very happy to do so.

Mr Gallagher:
It would be helpful if you could do that.

The Chairperson:
Mrs Hanna; you are last but not least.

Mrs Hanna:
It is good to learn a little more about the Strategic Investment Board and Health Estates, and their relationship and interaction with the Department and the Government.

We all have concerns about PFI and PPP, and we learned lessons from the last Assembly. Such projects were good because although we did not have the money to put up-front, we wanted the projects, and the people wanted their local services. The concern now is that the projects were not always the best value for money, and that that is why we have been left with clapped out buildings. Perhaps the witnesses would comment on Balmoral High School, because part of the problem there may have been that need in the area may have been wrongly assessed. However, I do not think that that is entirely the case. The issue now is about being left with the building. There is also the case that other buildings have been thrown up, and look almost system-built.

Are most projects taken forward on a PFI or PPP basis rather than on a traditional basis? Recent criticism from the Audit Committee was mainly about lack of in-house expertise. It was said a few moments ago that a lot of work goes to consultants because people in Departments do not have experience or expertise and that they rely on outside help instead of developing skills in-house. Would the witnesses comment on that and on Balmoral High School?

Mr Gavaghan:
Dr Livingstone was heavily associated with the Department of Education at the time of that particular case.

Dr Livingstone:
I was hoping that you would not say that. [Laughter.]

Mr Gavaghan:
I thought it would be wrong not to mention it.

Ms S Ramsey:
Is that to reassure us? [Laughter.]

Mr Gavaghan:
The point was made about Balmoral High School. The whole basis of the Bain Review was to look at need as the fundamental issue.

Dr Livingstone:
I was involved in all of the early education and skills, and further education projects — it is confession time. Actually, I am very proud of the work that we did then. In the case of Balmoral High School, the overriding problem was nothing to do with the PFI project. It was to do with what could be called a misjudgement, or miscalculation, of the viability of the school as regards pupil numbers. I remember early discussions on that point, but, thankfully, I had no part in them.

We deliberately called those projects pathfinders — we were looking for a path. We discovered early that there were things we could not do in Northern Ireland that had been done in England regarding education PFI projects. That was when I first learned not to assume that an English model would work if it were applied here. Most of the time we had to rely on expert advisers from outside Northern Ireland, and that was valuable. However, the greatest benefit in having our own specialist centres of expertise, in the Strategic Investment Board and in Health Estates, is that those projects can be carried out in a better way than in the past, and they will be carried out in the correct way for Northern Ireland. I do not deny that mistakes may have been made in the past. My view is that mistakes were made about the viability and the pupil numbers for Balmoral High School.

Mrs Hanna:
The Audit Committee criticised the lack of in-house expertise. As consultants are still used a great deal, is there still insufficient in-house expertise? Surely, some expertise can be found in the Departments.

Dr Livingstone:
When I worked in the Department of Finance and Personnel I had a hand in the early development of the Strategic Investment Board. Our main focus was to get Departments involved in complicated procurements and to try to tailor them to Northern Ireland circumstances. Undoubtedly, having come from unusual backgrounds, with no corporate finance or project management expertise of the type that Mr McKenna and his colleagues can bring to bear, we did make mistakes.

Due to the structure of the Civil Service, most staff — apart from professional groups such as accountants — move round a great deal, approximately every five years or so. This is particularly so with regard to large PFI projects. It also happens in Departments across the water that no sooner is the project over, then for stress or health reasons, staff move on quickly to something else, and Departments lose that expertise.

Creating an entity such as the Strategic Investment Board ensured that we brought in that expertise and made it a permanent feature of government. In that sense, I would love to have a team of civil servants working for me who all were experts in PFI — like Mr McKenna — but I could not afford them.

Mr Gavaghan:
Members will have their own doubts, but I hope that today we have given you some indication of the teamwork that is taking place between the Strategic Investment Board, Health Estates, the Department and the trusts. It is about teamwork; it is not about one group of people having the expertise and looking to consultants. Yesterday, the Institution of Civil Engineers produced a report that referred to the progress that has taken place in Northern Ireland, and in today’s ‘Financial Times’, an article by John Murray Brown mentioned that commendation. The Committee’s concern is whether we are up to the job and whether we are doing it properly. Today is part of that exercise, but members can corroborate what we are saying with many other people.

My final point relates to the competitive nature of the process — it is about taking significant business risks and best use of resources. It is about why we have had a significant level of interest in the south-west hospital. Granted; it is a very big project; however, the average number of bidders for projects in England is 1·7 and in Scotland it is 1·5, but in Northern Ireland we have achieved three or four international bidders spending money. That is because they believe that we are serious about what we are doing and that we are doing it well.

The proof of the pudding will be in the eating — meeting deadlines, managing the competitive process and getting value for money. We can do more work with the Department to get in-house expertise, and that is something that we are very committed to doing. As regards the Department for Health, Social Services and Public Safety, this issue could not be more serious. Mr Cole has a big team, as has Dr Livingstone, so the issue is being taken very seriously. We must get it right at the start, because the ramifications of getting it wrong are that the points made by the Committee will be correct and that people will suffer the consequences for a very long time. We do not want that to happen and it will not happen.

Mr Cole:
I want to make a point about having expertise in government. The Health Estates Agency is an executive agency of the Department of Health, Social Services and Public Safety. My staff are specialists and they do not move around in the same way as general civil servants. They all have significant experience in procurement.

Health Estates has benefited from its relationship with the Strategic Investment Board in gaining more insight into the commercial and legal aspects of PFI. The Strategic Investment Board would probably say that it has benefited a lot from working with Health Estates in the procurement of health buildings and in the specialist skills that we bring to bear. The partnership is proving to be very effective in that process. As to whether the Department of Health, Social Services and Public Safety has in-house skills, we clearly do have those — and they are supplemented by our partnership with the Strategic Investment Board.

Mr McKenna:
I want to address an issue that was raised by Mrs Hanna in relation to residual value — in other words the state of buildings at the end of contracts.

Mrs Hanna:
My question was about sustainability.

Mr McKenna:
Without stating the obvious; it is important that a building is maintained throughout its lifetime, or people will be left with a disaster. For example, the Ulster Hospital looks like something out of Eastern Europe 20 years ago. We must protect buildings during their lifetime and, therefore, we must ring-fence the maintenance costs. PFI is one way of doing that, but there are others. We are very focused on protecting the assets that we are building and not letting them decay.

Mr Cole:
The majority of our projects are currently capital funded. There are only a few projects going through and they are specifically being chosen as representing value for money at that scale.

The Chairperson:
Thank you, Leo, David, John and Jim. I hope that the next phase of the improvements at the Ulster Hospital will not be delayed in any way. I see that you are laughing at each other — when you start something you must finish it. Thank you very much.