Cynulliad Cenedlaethol Cymru

Bore da a chroeso. Good morning and welcome to this session of the Public Accounts and Public Administration Committee in the Senedd, Welsh Parliament. The meeting is bilingual; headsets will provide simultaneous translation on channel 1 and sound amplification on channel 2. Participants joining online can access translation by clicking on the globe icon on Zoom. I believe no apologies for absence have been received, so it’s good to see the full complement with us. Do Members have any declarations of registrable interest that they wish to declare? I see no indication, so thank you. We can move on.

We have a couple of papers to note today, the first paper being a letter from the Welsh Government’s director general for economy, energy and transport to the Auditor General for Wales, responding to the active travel report considered by the committee at our meeting on 17 October. The Welsh Government’s response accepts all the auditor general’s recommendations and sets out a proposed timeline for completing some of these, alongside one recommendation already completed. We agreed to undertake further work on this report, with a round-table evidence session scheduled for 4 December with the Active Travel Board, Sustrans and Living Streets. The committee will have an opportunity to consider some of the issues arising from the Welsh Government’s response during that session and beyond, when we will hear from the Government and other stakeholders. Do Members have any comments, or are you content to note this letter?

Happy to note the letter for now, Chair, but I would like to probe further in depth and detail when we do have the evidence session in relation to, obviously, they’ve spent £218 million through the active travel fund—great—however, they’ve invested just under £70 per person, but, as we all know, not every single person is an active traveller. So, I’d like to go into a bit more depth when we do have that session as to, for those who aren’t using it, where is that money going as well.

Okay. Thank you. If everyone’s otherwise content to note, we’ll move on to the second paper to note. The Welsh Government’s director general and chief operating officer has written to the committee following our session on 17 October, providing further information about the data captured in line with action 1.1 of the ‘Reflecting Wales in Running Wales’ strategy. This also sets out their position on the Senedd’s legislative competence to establish a Welsh system of public appointments. The letter explains that two pilot surveys have been undertaken on public sector body diversity and sets out the focus of each survey, along with the data captured by them. The letter accepts that Welsh language proficiency was not included in the original data collection process and notes, quote, that

'the focus was directed towards specific priorities aimed at assessing key personal characteristics. We understand, however, that Welsh language skills are an important aspect of representation on our boards.'

They go on to say that they’re committed to addressing this gap and will, quote,

‘incorporate Welsh language proficiency into future data collection efforts for board members.'

They also offer to conduct a supplementary survey of current board members to capture this information, quote, ‘without delay’.

Concerning the Senedd’s legislative competence to establish a Welsh system of public appointments, the letter simply notes that they have not taken legal advice on this issue. The committee has agreed to report on this issue and a draft report is currently being finalised by our clerking team, with the aim of reporting as soon as possible. So, Members, do you have any comments or are you otherwise content to note? Mike.

Two comments: one, good news about collecting data on Welsh. I just don't know why we've had to push them and pull them and tug them in order to do this; the second one, why can they not collect the first part of people's postcodes? It will give them an indication of geographical spread, it will pick up whether they actually are getting to all parts of Wales or they're only getting to certain parts of Wales. It's just beyond my comprehension that they don't collect that and I would like to push back on them on that. It's simple—they must have that information in order for people to pay tax. 

Thank you. Will that be captured in the report, because I know it's an issue that Mike made powerfully during the evidence sessions?

It certainly can be, if that's what Members want to include, of course.  

Are you content for that to be referenced? Adam. 

I was going to ask that question. So, we can do that? Yes. That's good. On the first point, if I remember when we took evidence from the Senedd Commission in relation to their actions in this context, they referred to a certain model or process they were following. Might that be worth referencing in the report? I forget the name of the individual, but she seemed quite well-briefed on this.

Yes. We could certainly reflect on that evidence and include it. 

Chair, Rhianon had her hand up as well. 

Rhianon. 

Firstly, I wanted to highlight Mike's earlier point on this. I know that that's been done. Again, I absolutely agree with Adam in terms of us having been discussing this, as well, for quite a time now. It seems to be a simplistic mechanism that shouldn't cause any issues. Yes, it's not perfect and, yes, there could be potentially arguments against it. But, for our intents and purposes, in terms of basic data collection, it absolutely works. So, I'm more than happy to support what Mike has said previously and also what Adam has said previously. We have issues around this. Thank you.

Thank you very much. Therefore, if Members are otherwise content to note, subject to those agreed actions, that takes us into a temporary break until 09:35, when we'll begin our evidence session with Velindre University NHS Trust. So, I ask that you take us into closed session. Thank you. 

Croeso, welcome to our witnesses for this session, who have now joined us. We'd be grateful, for the record, if you could simply state your names and roles.

Hi. Great to be here. I'm Carl James. I'm the interim chief executive of Velindre University NHS Trust.

Hi. I'm Lauren Fear. I'm the interim executive director of strategic transformation, planning and digital at Velindre University NHS Trust.

Hi. Matt Bunce. I'm the director of finance for Velindre NHS Trust.

Okay. Thank you. Some of the matters that we'll be considering today are commercially sensitive in nature, and part of the meeting may therefore be conducted in private if you indicate in your responses that there are issues that you'd prefer to conduct on that basis. But we'll begin in public and cover as much ground as we're able to. Today's proceedings are separate from the independent audit work being undertaken by the auditor general and Audit Wales, which will be considered by this committee in due course. So, I'd be grateful if you don't comment or refer to the ongoing investigation being conducted by Audit Wales.

As you'd expect, we have a number of questions, and I'd be grateful if both Members and you could be as succinct as possible in your questions and answers to enable us to cover as much ground as we can. I'll begin with the first set of questions, and then I invite colleagues to take up the matters in more substance. So, initially, just a simple, closed question: did the NHS Wales Shared Services Partnership's special procurement team, which provides procurement services to all health boards and trusts across Wales, act on your behalf for the procurement for the new Velindre Cancer Centre? And if not, why?

Matt can pick that up.

The shared services organisation didn't get involved in the actual procurement of the hospital in terms of the mutual investment model process. So, the trust used DLA Piper, who are experts in the field of procurement, around the MIM because they'd been involved in that process with the Welsh Government from the start in terms of designing the MIM process. They worked alongside two other specialist advisers, which is normal for a public-private partnership build. So, as well as the legal procurement advice from DLA Piper, we also had financial and commercial advice from PricewaterhouseCoopers, and technical advice from another organisation. However, there are two parts of the procurement for the new hospital: there's the build itself, but there's also the procurement of the equipment within the hospital. And so, for that part of the procurement, which has commenced literally in the past few months, shared services have got the specialist expertise in NHS procurement of equipment, and those experts are heavily involved and leading that procurement with us. So, at the time, shared services did not have that experience in MIM or public-private partnership procurement. So, the organisation took the best expert advice for the two aspects of the procurement: DLA Piper for the MIM procurement, and now shared services for the equipment.  

So, just to come back on that, DLA Piper, did they act on your behalf for the procurement, or were they there in an advisory and support role?

They actually were involved as an adviser to us, but also participated in that process. 

Okay. And beyond that external support that you brought in, what skills capacity did the trust have for the procurement exercise and does it have now, going forward, to run the project? 

The trust has got a project director, who's the new Velindre Cancer Centre project director with significant experience in major construction and capital builds. For example, projects that he's worked on include the new Alder Hey children's hospital and north Bristol. We were also supported by the MIM transactor, providing commercial procurement skills and advice, experience of public-private partnerships—the MIM project delivery—so, they've been involved in another MIM project in Wales. And alongside that, a whole range of other advisers—I've mentioned DLA Piper, but also other advisers around technical aspects of the procurement.

Thank you. With reference to DLA Piper and PricewaterhouseCoopers, both of whom you've already referred to, can you add to what you said, please, about what their advisory roles covered and entailed?

Yes, DLA Piper was very much involved in ensuring that the procurement process met procurement regulations and the law, helping us to design that procurement to get the best possible outcome in terms of the facility we were looking to build.

In terms of PricewaterhouseCoopers, it was very much around the financial model, so making sure that the financial model in relation to the MIM, which is quite a complex process in terms of capturing all the capital costs for the build, but also what does that mean in terms of how that translates into an annual service payment, and then also the lending part of it in terms of the financial funding aspects—. They tested out independently that model to assure us that the model that was being developed by the MIM contractor was sound. They also provided other commercial advice in terms of lending.

Okay. Thank you. In its evidence to the committee, the Welsh Government told us that Local Partnerships had been involved in some of its significant projects, including the procurement and contract award for the Velindre Cancer Centre, acting as its, quote, 'transactor', ensuring the Welsh Government's interests were safeguarded. What did this involve and how did this work in practice?

The MIM transactor has got quite an explicitly defined role as a job description. I'm sure you could look at it yourself, but, essentially, they're involved, as you said, to assure the Welsh Government that the public service is getting best value for money out of the MIM process. They're involved in the competitive dialogue meetings with the bidders. They're not entitled to instruct the bidders, so everything is open and transparent and fair, but they're involved in those dialogue processes. They can make representations, where they've got concerns about the process, to the trust project director—so, the project director that we have for the project; they can make their concerns or any issues known to them. They also liaise with the Welsh Government in terms of the Welsh Government manager in terms of the MIM Treasury process.

As you said, they're responsible for ensuring that the process aligns to the MIM policy so that we're not deviating, in terms of this procurement, away from that MIM policy, or if we are, there's clear understanding of what that means in terms of any transfer of risk between the bidders and the NHS. So, it's essentially also to try and then ensure that we don't actually take on any reduction in quality around the actual process and the build. So, those are probably the main aspects of that role. And they were part of the MIM project office alongside DLA Piper, our advisers, and the Welsh Government officers, in terms of the Treasury and the NHS side, to oversee the whole process.

Okay. Thank you. Could I invite Natasha Asghar to take up the questions?

Thank you so much, Chair. Good morning. Would you mind sharing with the committee exactly when and how the trust first become aware of the legal proceedings in other jurisdictions against two members of the Acorn Consortium, namely Sacyr and Kajima, and FCC Construcción, a member of the Future Health Consortium?

Thank you. So, if we start with Sacyr, shortly after the final bids were submitted, which was in June 2022, we became aware that there was a legal case that had been found against Sacyr in July 2022. At that stage, Sacyr had been selected as the successful participant, but the successful participant letter, which formalises that decision, had not yet been released. So, that was in September, and we can come on to what we did in between, but it was before the successful participant letter was sent. With Kajima, we were made aware of the case that you're referring to in February 2023, via the press.

Okay. And did you have any responsibility to inform the Welsh Government about these proceedings, and if so, when did you? Because in their evidence to the committee, officials suggested, and I quote, 'it was apparent', in summer 2023, which was after the Acorn consortium was announced as the successful participant in the procurement exercise.

So, Welsh Government officials are aware of key developments in the project as the project has progressed. That's through various mechanisms, including the MIM transactor's role, as Matt's already explained, and then through their governance process, the health strategy board, which, as a trust, we're invited to for part of that meeting on a regular basis. So, the decision around how we reflected the process that we'd taken in understanding the legal case in July 2022 and how that was reflected in the successful participant letter was fully sighted by Welsh Government officials.

Okay. On 8 May, the Welsh Government told the committee it and you had sought legal advice from DLA Piper during the procurement process. So, why and when did you do this, and what was the basis of your instructions? And also we'd like to know was this advice jointly commissioned by you and the Welsh Government, or just solely yourselves?

So, to go back slightly on DLA Piper in terms of the contract, DLA Piper were first contracted by Welsh Government to design the MIM policy with them in 2015, alongside PwC and Towers Watson, and then those three contracts, as the three key advisers on the MIM, transferred into the trust, a direct contract with the trust, in November 2020. So, from that point, the contract was directly with the trust, although they also were involved in the wider engagement with Welsh Government, and it was all very transparent and open with Welsh Government.

The advice that we sought was when we became aware of the case in July 2022. We immediately asked DLA to conduct analysis to understand whether the responses that had been given by Sacyr in the pre-qualification questionnaire, the PQQ, in 2021, around grounds of exclusion—so, this is specifically around criminality and the distortion of competition—whether the responses to those questions were still valid. And through their analysis, the answer to that was, 'Yes, they were still valid', because the case for Sacyr was a live case, because they confirmed that they were going to appeal that decision within the time frame, which was to the beginning of October.

So, in the successful participant letter, which we then released in September, there was a requirement of Sacyr to inform the trust if there was any change of circumstance that would subsequently change their response to the pre-qualification questionnaire, which we would have been able to take into account before financial close.

Okay.

Could I just ask—? Sorry, I missed—. What was the date you said you became aware of the Kajima court ruling in the Tokyo district court?

With Kajima, we became aware in February 2023, as I mentioned previously. When we were made aware of that situation, again we asked DLA to confirm whether the response provided by Kajima had been appropriate in the PQQ, in the pre-qualification questionnaire, and again the result of the analysis done by DLA was 'yes'.

With Kajima, there's a key difference between Kajima and Sacyr in terms of these two cases. So, with Sacyr, the entity involved in the case is an entity in the consortia, so it’s a guarantor of Sacyr construction. In the situation with Kajima, the entity involved in the case is not involved in the consortia at all. So, it’s not involved as an entity directly nor as a guarantor to any of the Kajima entities in the consortia. So, that response in terms of the analysis from DLA was twofold. They were appropriate in answering 'no' in the PQQ, one, because the case was still live, which is the same situation in both cases for Sacyr and Kajima, and then there was the second level with Kajima, which was that the entity was not part of the consortia nor a guarantor.

Chair—

Can I just clarify and then I'll bring you in, Adam? Given that we’d expect normal due diligence checks for these processes, why were you not aware therefore that Kajima were found guilty in Tokyo district court in March 2021 and that their appeal failed in March 2023, several months before you became aware, although again that was reported in the media? Shouldn’t that have been noted?

So, the procurement process through the pre-qualification questionnaire is a self-declaration process. I understand the question, but it is a self-declaration process. However, if we had any insight, like becoming aware of the case in July 2022 with Sacyr, then we immediately would act on that, we wouldn’t wait for a self-declaration. But the procurement process itself, through the PQQ process, is self-declaration.

Adam.

Sorry to cut across, Chair, I just wanted to clarify then the exact legal relationship between Kajima Corporation, which is I think the company that was found guilty, and the Kajima companies that were part of the consortium.

Yes. So, Kajima Corporation is the parent company globally for Kajima. The two entities involved as part of our consortia: the first is Kajima Partnerships Limited, which is the developer and shareholder, and then the second is Kajima Europe Limited, which is the financial support provider. So, the reason why the Kajima Corporation is not in scope of this situation is that, as I say, it was neither one of those two entities, nor the financial guarantor of either of those entities, which is the criteria for procurement. We can come on to the action that we took, which was actually exactly the same for both Kajima and Sacyr in any case, but, just to clarify.

Okay, just to clarify, then, the companies that were in the consortium, are they wholly owned subsidiaries under the legal control and ownership of the Kajima Corporation?

So, it is the parent company, but the way in which procurement law works—and we’ve been through this in detail with DLA as our legal advisers—is that filling out the pre-qualification questionnaire and that process is for the entities in the consortia, or if there’s any direct relationship through a financial guarantee to those entities, rather than any further entities further up the chain or connected.

I can understand from a financial security perspective why that interpretation would be in place, for example, to avoid any potential consequences in terms of bankruptcy. But what we’re talking about here, of course, is corruption and, indeed, criminal cases. Wouldn’t you accept that, in that context, the argument that you’ve just presented should not apply in public procurement? Because if a company’s parent company is found to be engaged in criminal corruption, then I think it’s very reasonable to draw the conclusion that that raises concerns about all the companies under its control within the group.

Firstly, that is very clearly the legal advice that we've had, and in terms of the appropriateness of the legislation, that's clearly not a matter for us. I appreciate you're not saying that. But, as I say, we can come on to the action that we've taken, which is exactly the same anyway with Kajima in terms of the way in which we've approached both Sacyr and Kajima, and the further assurances that we've asked for have been exactly the same from Kajima in any case. It was just a clarification of the situation with both legal cases, in terms of the entities involved it is different.

So, is it your evidence, based on the advice that you've received, that a company, actually a parent company, could have gone through all stages in the legal process, could have been found guilty of very serious criminal corruption, and as long as it has created a protective shell for itself in creating a subsidiary company along the lines that you've described, there would be no problem procuring from that company?

Our understanding based on the legal advice is, as I say, it's either, firstly, an entity in the consortia directly or a financial guarantor of one of those entities.

Does this raise any concerns? If that is a correct interpretation of the legal framework, does this raise any concerns, do you think, legitimately from a public procurement perspective?

Just to build on what Lauren said, and picking up on the last point, we’ve talked about the team, and what we've endeavoured to do all the way through this process is work with highly experienced, knowledgeable people who have done this before, and similar to the procurement process, what we will do and always will do as a public organisation is follow the rules to the letter of the law. That's what we've endeavoured to do. We've worked within the policy framework, the procurement framework, taken legal advice, sought decisions through our board and worked closely with Welsh Government to ensure those decisions are appropriate. And, as the accountable officer who's absolutely responsible for all of this, I've also got to be satisfied that it does just that, that it works within the framework that we as a public organisation have to work within. So, that's our job, and that's what we've done to date, and hopefully we can demonstrate that to the committee this morning. 

I think the letter of the law is one thing, and obviously we'll take our own legal advice as a committee on that, I'm sure, but don't you think that it raises issues of reputational risk, considering we're talking about the public sector, public money? Shouldn't there also be a responsibility on you, beyond what the legal framework says, to say, 'Well, actually, there are certain situations where the reputational risk is such that we should not be dealing with companies where there is serious concern about their probity'?

And in terms of reputation, it’s everything, isn’t it? We work for the NHS, so our reputation is sacrosanct and we would never knowingly put that at risk. We have really rigorous risk management processes in the organisation, our trust assurance framework, our risk management processes. So, we do take that extremely seriously. Specifically on this particular matter, again I come back to the fact that we absolutely work within all the advice, all the policy framework, all the procurement legislation. If at a point, which we're not anywhere near, this becomes something that is outside of those, then we would seek further advice and take that back to our board. But we would always ensure that we work within the Nolan principles and 'Managing Welsh Public Money'. Those are the things that we work within as a public sector organisation, and those are the things we hold dear.

I'm sure we'll return to this later. Thank you.

Given the external bodies involved, which you’ve referenced, and your own risk management processes, which you've also referenced, how could the fact that it was in the media that Kajima had been found guilty in March 2021 of bid rigging not have hit your radar?

Going back to the pre-qualification questionnaire, that was completed by Kajima in 2021, and the answer to the two most relevant questions to the Kajima case, as I say, were around criminality and distortion of competition and they answered 'no' to both of those, which is still correct. And our legal advice throughout the process has been that it continues to have been correct for them to answer 'no' at that point. It's—. I appreciate your direct question, 'How did we not know?' Sorry, Adam. 

Isn't that because, though—? It's a standard practice for companies who have faced these allegations. They drag out the appeals procedure as long as possible, appeal after appeal, even though they lose the cases, precisely so that they can say, 'Look, we haven't exhausted all legal avenues', and at some point, surely, as a public authority you should see through that subterfuge and say, 'I'm sorry, this is not a company that we should be dealing with.'

And if I could just add, and surely you should at least know that this has happened, even if an appeal process is going on. 

So, the advice that we've had is that there was not an obligation on us to have done that proactive research through this part of the procurement process. So, the advice we've had is the way in which the Public Contracts Regulations 2015 operates—which is the way in which we have designed, with DLA's advice, the whole procurement process, in line with those regulations—is that the process is based on self-declaration, and that is what we absolutely followed. 

Well, it certainly raises questions about the procurement process. Mike Hedges, please. 

Diolch, Gadeirydd. Going back to something Adam raised, Kajima, there are the consolidated accounts that they could use, including the accounts from the subsidiaries, and are profits made by these subsidiaries actually added to the total profit of the holding company?  

So, I'm not clear on how the subsidiary accounting works. Going back to the previous conversation, we've had very detailed legal advice on this, which has been scrutinised, as Carl said, both by our trust board and by Welsh Government at the time and since, that the way in which Kajima answered the pre-qualification questionnaire was appropriate—in Kajima's case for two reasons, in Sacyr's case for one—is, effectively, what I'm saying. So, in Kajima's case it was appropriate because, firstly, the case was still live and, secondly, the entity was not involved in the consortia nor a guarantor. And in Sacyr's case, it was appropriate because the case is still live.

You must have looked at their accounts, the company accounts, surely. You wouldn't have done business with a company whose accounts you didn't look at. All I'm asking is—I've got a relatively simple question—when you saw their accounts, were the subsidiary parts of the consolidated accounts created by the main company and were profits reported as profits of the main company? I think the answer to both is 'yes'. If you need to go back and check with somebody, please do, and come back to us. 

Could I just pick up the last point Mr Price raised? I do take your question. I think what we have done and will continue to do is stick to the process, and we've taken advice, and the advice has taken us to a decision. I think on the broader aspect of risk—and Lauren might want to touch upon this—there are risks either way, aren't there? So, there's a risk of doing something inappropriate. We followed the process. And Lauren might touch a little bit upon the risk of disqualifying somebody, which is also possibly inappropriate. So, we've had advice either way. Lauren, you might want to just touch on that, for the committee to see the totality of the things that the organisation is managing during this process. 

Yes, of course. And also to Mr Hedges's point, there are different parts of the pre-qualification proces through procurement that deal with the accounts in terms of the financial stability of the entities involved. So, they would have been—. I'm not saying we didn't look at the accounts as part of the procurement process; that's a separate part of the process. In terms of the wider risks, as Carl said, if we had disqualified without grounds then it would be an illegal action from the trust, and that's the clear advice we had.

I'll finish on this. Your legal advice: did that come from leading counsel?

Sorry, I don't understand 'leading counsel'.

A King's Counsel, as they are now—a Queen's Counsel, as it was—

Oh, I see.

—who is an expert in this field.

No. So, this wasn't any sort of adversarial process, it's through—. So, DLA Piper are a leading international, substantial law firm. They specialise in public-private partnerships. Their main client in the UK is Government. And they provided the—. They designed the MIM policy with Welsh Government, and then the trust contracted them directly to lead the procurement process.

But when something is at this stage, the full protection you get is by getting support and advice from a leading counsel, a leading KC, as they are now, QC as they were when you started. That gives you full protection. Taking legal advice from a group of solicitors, do you think that gives you full legal protection?

Yes. Yes, we thought it absolutely was appropriate in terms of the level of advice and the extent of that advice that, as a trust, we've procured from DLA over the course of the process.

And you think it gives you full legal protection.

Yes. We're confident that it was robust advice.

Sorry, I'm trying to make this question simple: do you think it gives you full legal protection if this goes to court, or don't you?

Yes, we do.

Thank you. It only took four goes.

Thank you. Again, just to absolutely clarify on this point—and then I'll bring you back in—even had DLA Piper or yourselves been aware that Kajima had been found guilty of bid rigging in 2021, and you state you weren't aware until some time thereafter, until after the appeal had failed, in fact, the process you followed would still have been correct?

Yes.

Okay. Natasha.

Thank you, Chair. Going back to legal advice, if that's okay, what processes were in place to mitigate any conflicts between DLA Piper's role on the project team and it providing legal advice about the procurement process itself?

Shall I—?

Yes, do you want to take that one?

Yes. So, DLA—. So, there is no conflict, to start with that. So, DLA Piper—. The procurement process is a legal process, following procurement regulations. So, they managed that process on behalf of the trust, providing legal advice through that process. So, it was one process. There were not two roles that they were undertaking.

So, there was definitely no conflict of interest?

No.

Okay. When did you actually receive the legal advice?

So, the legal advice on Sacyr was received in July 2022, when we became aware of the case. And the legal advice at that stage was to undertake—. Sorry, not 'to undertake'; the legal advice was to include in the successful participant letter the change-in-circumstance requirement, because the case had been confirmed by Sacyr, that they were going to appeal in the October, which we then had confirmation that they had done, and confirmation at that stage that, in conjunction with the appeal, that the Spanish court, there was an interim measure to suspend the judgment that had been made in July. That situation continues to today with Sacyr. So, the appeal is still at the same stage as it was in October 2022.

Okay. In July, the committee asked the trust to share legal advice. On 26 September 2024, you provided a paper, which you said provided, and I quote,

'assurance that robust procurement processes were in place during the award of the Project.'

End quote. Why haven't you shared the legal advice itself yet?

So, that document that we prepared was—. We asked DLA Piper to summarise the legal advice over the course of the last two years on this matter. We very much thought that was the easiest way to share that with the committee. As you can imagine, there's been significant correspondence and legal advice papers throughout the period, and we just thought we were being as helpful as we could be. But, of course, we can share however much detail the committee wants; we can share all of it with you.

I think the committee would appreciate having everything shared with us.

Yes, of course.

Literally everything—no holds barred.

Yes, that's fine, of course.

And we, I know, as a committee, have held many private documents in complete confidentiality, and I'm sure we'll do the absolute same with yours as well, if that's okay.

Yes, of course. Yes. 

Right. My final question—I'm sure you're all going to breathe a sigh of relief with this—is: when and how did you become aware of legal action by two NHS organisations in England against Kajima relating to alleged fire safety defects on hospital PFI projects, and what actions did you specifically take as a result of this information being disclosed?

Shall I take this?

Yes, go on.

Yes, that's fine. So, this is relating to two other PPPs that Kajima were involved in in England, as you say. So, the first is the Royal Alexandra Children's Hospital and the second is the Hadfield wing of Sheffield Teaching Hospital. So, in both cases, there were changes that needed to be made after Grenfell, in 2017, to the way in which the buildings operated. In both situations, this is clearly a commercial matter for Kajima with the authorities in both of those cases, and both situations have now been resolved and the full works have been carried out by Kajima in both of those cases. So, we've had further assurance of that recently in terms of the progress they made on that.

In terms of the lessons learnt, as an industry, the role of the independent tester, through the construction period of PPPs, and the same with MIM, has been enhanced significantly over the last number of years. In the MIM policy, the role of the independent tester is very strong, and we're seeing the benefit of that already, with our own construction starting in March this year.

Okay. So, you are absolutely 100 per cent content that, with regards to safety defects here in Wales, we're good.

We think that the process set up in the MIM, with the various control levels as an authority and with the independent tester, who reports both into the investment of the consortia and the authority, is robust.

Okay.

The contract picks up on that. So, for example, any legislative changes around fire safety or building safety, the contract then sets out who is responsible and accountable for picking up what elements of that, if, 10 or 15 years in the future—. Things, obviously, change, don't they? So, it's very clear on who's responsible for what aspect of that.

So, just, sorry, to follow up on that: so, as it stands today, November 2024, who is responsible?

For—?

Sorry?

For what, sorry?

For the safety defects. When it comes to everything, what you're doing, what has happened so far, you're saying that everything's robust, everything is in place. For the actual trust itself, you are responsible, then, I take it—or is it Welsh Government? Who is responsible? That's what I want to know.

It's set out in the contract, absolute in the contract, so it's very clear in the contract. We haven't got the contract in front of us; it runs into thousands of pages, but—. And, again, back to the legal advice, in terms of levels of risk owned by the trust and transferred to the provider—very clear, all that. And again, we can provide further information to the committee on that particular aspect as well.

I'd really appreciate that. Did you want to say something, Lauren?

Yes. I was going to say—. So, the trust is accountable, as Carl said, as the authority, for ensuring that the role of the independent tester is carried out effectively. So, if the independent tester does not sign off any stage of the project or at the end of the project, then, as the authority, we would not accept that as a completed construction and enter into the concession period. So, we always have that level of control.

Okay. Thank you, Chair.

Thank you. Rhianon Passmore, I think you have some questions.

In regard to the actual procurement process itself, and the rigour within which it's been constructed in this area, are you confident that it is as rigorous as it should be, bearing in mind the earlier commentary and concerns that have been expressed around the parent company and, obviously, the situation we've had on the ground in terms of the two names that we have discussed so far?

Yes. I mean, ultimately, not to go back over the last half an hour, we've followed the process to the letter, we've taken advice from—

Sorry, with respect, I'm not saying, 'Have you or have you not followed the process?' My question is a different one, in the sense of, 'Are you confident?' And you may not be able to answer this, but are you confident that this procurement process itself is 100 per cent rigorous, or as rigorous as it could be?

I'd have to say 'yes’, because we've followed the process. We've got legal advisers advising us. We've taken it through all our important governance steps in our organisation. We've also had the advantage of a range of external parties looking at what we're doing. So, we've got colleagues here from Audit Wales. There's also a number of other elements. There's a gateway review process business case you've got to take through. There’s a thing called a commercial approval point, where you've got external experts in PPP who come and have a look at where we are in the process. And until you essentially pass those gates—

Yes, I understand the process, I've been involved—

So, I guess, I can take sufficient comfort, assurance and confidence that, at each stage, to date, we've complied with all of those criteria set down by people outside of my organisation. So, on that basis, I'm confident.

I understand that. I'm giving you a question that, potentially, you can't answer, so forgive me, Chair.

I'm trying my best to answer it. I'm not trying to avoid it.

Thank you. No, no, I realise that. And thank you for your response.

I'm going to move on to explore, in a sense, why you, as the trust, have published an amendment to the contract notice after it's been issued, which did commit to the reimbursement of fees to unsuccessful parties, and ascertain information about—. And I'd like to find out a bit more information in that regard, really. So, in September 2021, the trust published an amendment to the contract notice for the new Velindre Cancer Centre, having originally said—. You said that you would not accept liability for costs incurred in the procurement process, and that it would now be reimbursed to those who were unsuccessful. Yes, with the liability capped at £1.3 million per participant or per consortium. I'm really intrigued. Why was this sewn in? Was it due to lack of interest? How common is this for the procurement exercises undertaken in Wales? Obviously, in terms of, broadly, the public procurement processes of Wales, because that could get extremely costly for the public purse, and it's something that seemed quite novel, with my limited experience in this field, anyway.

Okay, so Matt's going to start us off on that one.

Yes. So, you're talking about the stipend that, obviously, the trust agreed to pay to one of the unsuccessful bidders. The reason that the stipend is used is to help drive competition and get sufficient organisations and bidders involved in the procurement process.

So, sorry, for clarity, you're calling it a stipend. From my understanding of what I have, my understanding is it was to all unsuccessful bidders. Are you saying that it was just one unsuccessful bidder in this case?

Sorry, because, obviously, I'm taking about our particular procurement, but it could be to any unsuccessful bidder, but they have to meet several conditions. So, it's not just given to any bidder that starts a process and then withdraws it. They have to go through the whole procurement process, have produced a competent bid, i.e. one that could then be evaluated against the other bidders. So, obviously, this stipend that we are paying is not the total cost of that bidder running their procurement process. So, there's an open, transparent process where you get to review the costs that they're submitting, and obviously challenge those costs, and what you're paying is a contribution to that, and the whole point is to engage more organisations to make a better competitive process. So, whilst totally accepting what you're saying that there's a cost side of it, the benefit overall in having more organisations competing in a procurement process, to get a better value, both economically and quality wise, far outweighs that cost. 

Now, obviously, you’ve got to realise, when we were doing this also, when you’re talking about whether it's common, we were in the midst of COVID. The economic landscape that we were working within was not one where there were a lot of organisations, companies, looking to bid for major construction builds. So, that was part of it, and it has become more common since, particularly for major complex build projects, where there’s a lot of upfront costs that a bidder’s got to put in, because they’re actually, essentially, designing the build for you. So, also, there’s the added value you get out of that process, by having more organisations and more bidders involved. You’ve got designs, maybe, from two, three different companies that you can take different aspects of, so when you award to the successful participant at the end—whoever wins overall—you can take aspects of the design that you’ve essentially paid for through that process, and use those to get that overall best-quality design. So, there are elements of—

Can I just interrupt you because we have limited time, I’m sorry to do that? But in regards to why—. Bearing in mind what you’ve said about COVID, and the known issues around building and, as you say, procuring more complex designs, you would have known that prior to the contracts being written up. So, why was it amended afterwards? Was it that there were no bidders? Can you just give a little bit of clarity on why it was done afterwards?

Do you want to pick that one up?

Yes. So, at the time, there were three bidders involved, and this contribution towards bid costs was agreed, as Matt said. It was a ministerial decision. The notice went up on 9 September 2021 on it, following the Sell2Wales transparency notice that you’re referring to going out the day before. Even after the contribution of the £1.3 million towards unsuccessful bidders' costs, one bidder did pull out. So, we progressed the competition with two bidders, then, at that stage.

Sorry to be a little bit obtuse, but in regard to incentives to pull out after this has been, in a sense, procured as part of the bid moving forward, could you just, very, very briefly, explain to me how that could occur, in the sense that you’ve got your bidders, they’re all happily swimming away in this process, and then you suddenly get, ‘Oh, you can have money if you are unsuccessful’? Would that company, then, that had pulled out at that stage receive any remuneration, because I think, really, to cut to the chase, I want to know how much has been paid out within this stipend system, and to whom you’ve also reimbursed that amount of money? So, if you could just briefly speak to that. Thanks.

Yes, so—sorry, Matt. 

I think the first question was why would an organisation pull out once they knew they were going to get some contribution to their costs. I think you were alluding to that seeming a bit odd.

Yes. 

Well—

I realise it’s a mechanism, but in this particular case, you just said that somebody pulled out as soon as they—

I suppose what it was telling me, because they did push us harder to have a larger stipend, all of the companies involved—. What I’m saying is, there’s significant investment in their costs, and that organisation took the view, probably, that the costs of them engaging in the procurement to the full end point was going to cost more than £1.3 million, which is the case when we’ve looked at the organisations we’ve had to pay in terms of that the £1.3 million is not the full cost that they’ve incurred to get to the end point.

No, and that is a normal process in terms of bids, that there are periods of significant investment in time, capacity and finance, in terms of putting together a bid; that’s the world that we’re in. So, in this particular case, then, to cut to the chase, who did you pay the stipend—we’ll call it a ‘stipend’—to and how much was paid?

Sorry, can I just add one point to what Matt just said? The key point in that part of the discussion is a competent bid. And these bids cost millions of pounds to deliver, so Matt’s point is really important. It’s not, if you enter the race, you get £1.3 million; you’ve got to deliver a competent bid that we could have taken through the procurement process, and could have then been the bid that won. So, that’s the really important criteria through which they were then judging how much more energy, effort and resource they expended to get from where they were to what we would then determine would be competent or otherwise. So, I think that's really important for the committee to understand: it wasn't just £1.3 million for anyone who entered the race. 

But I will answer your question. So, £1.3 million was paid to the other remaining bidder who produced a competent bid, which is Future Health.

Sorry, future—?

Future Health.

Future Health. And that was a sum of £1.3 million.

Yes.

Thank you. And then, finally, why was it appropriate to reimburse the Future Health Consortium when one of its members, FCC Construcción, was among the construction firms fined for collusion in Spain?

So, like with the situation with Sacyr, FCC were the construction arm of the Future Health Consortium, as Matt said. They were involved in exactly the same legal case as Sacyr, and the judgments and appeal timescale is the same for FCC. So, again, they appealed, and that appeal is still live. 

Okay. And I'm just asking for further clarity. I'm presuming, going back to this robust and rigorous procurement framework that this has modelled in this particular case for the new Velindre building, that when you decided to go to the competent bidder who pulled out and say, 'Right, you're competent. You've pulled out, but we'll give you this stipend of £1.3 million in order to do so', there wasn't any further due diligence taken at that point, or am I presuming, from everything that has been said, that you're confident with the procurement process and that you've followed diligently all along the line the advice that you've been given and the process in front of you? And if that's the case, why wasn't this known, I suppose, is the question.

So, firstly, on the stipend contribution to the bid cost process, as we're discussing, it's a commercial balance of risk, and the reason for talking about the previous three bidders down to two and, as Matt mentioned, we were being pushed as an authority to provide an increased contribution to bid costs to £1.3 million, that it was a balanced decision in terms of that being an appropriate level, with further conditions attached, because not all—. The contribution to bid costs mechanisms can be set up in different ways, and we made it very stringent in also receiving the full design of any unsuccessful bidder, which we did with Future Health.

So, in terms of the second part of your question, we were completely aware of the situation with FCC. Not only were they part of the same legal case, as I've referenced—it's not for us to talk about, but just for clarity for the committee—when DLA Piper were designing the MIM process with Government and then led on our MIM as the trust, they also were the legal adviser for the other two MIM projects in Wales, including the A465, and FCC are the construction firm—as I appreciate that the committee is well aware—as part of that consortium. So, DLA Piper were very clear in terms of the situation for both organisations and provided us with the full legal advice in that context.

And can I just ask one final question? If there was full transparency around the ongoing legal action in Spain with the Future Health Consortium, why wasn't that a factor in their bid being taken forward by this model?

So, why did Acorn win the overall competition? Is that—?

Well, in terms of the Future Health Consortium being in the mixture when it's being clearly tested through the courts in terms of being fined for collusion, that wouldn't automatically disbar it within this procurement process? I presume not.

No. FCC are in exactly the same position as Sacyr. It was the same judgment for a number of Spanish firms, and Sacyr and FCC are two of them, so the timescales and the grounds for exclusion are the same for FCC as we've been talking about for Sacyr.

And that brings it back to the process again. Thank you very much, Chair. I won't go into my concerns around procurement with Welsh firms. I know this is a very large bid and I'll let you move on. Thank you very much.

Chair, can I just add two broad points for emphasis for the committee, maybe coming to the future lessons learnt? The first is on Matt's point: bid costs are becoming far more a part of the way these types of schemes are taken forward in other countries in Europe, because of Lauren's point that the commercial risk for organisations bidding for these things is quite significant. We're not experts, but experts have told us this. So, that is becoming part of how people fund these schemes in other countries.

The second point is a broader policy point for Wales. Again, it's not for us to be responsible, but we could certainly help. Other bidders also told us that what colleagues are looking for is essentially a PPP pipeline, where there's a pipeline of projects available so that when they do take the commercial risk and invest in something, there's an opportunity to get other potential infrastructure projects. So, that's just another piece of learning that we might reflect on as to how we take this policy forward with Government colleagues and others.

Thank you. Very briefly, before I bring in Adam Price, the ruling by the National Markets and Competition Commission in Spain was after the deadline for expression of interest. However, in your evidence to us, you told us that the consortium and its members were obliged to report a change in circumstances during the procurement process. Did they do so?

The change in circumstance that was in the successful participant letter hasn't been executed because there hasn't been a change for Sacyr since that was in place. And with Kajima, the case was appealed, as we said in March 2023, and that continues to be a live case because that is now with the Supreme Court. So, in both situations, there hasn't been a trigger to the 'change in circumstance' requirement between successful participant and financial close.

Okay. Adam Price. Oh, sorry, Rhianon Passmore.

Very briefly, within this whole process, which I know is very lengthy and can be complex, there is at no point any onus on any potential bidder, or any bidder that has been accepted from its initial outline business case et cetera, to declare to us as the procurer that they are going through a major court case. Even though the circumstances haven't changed, they don't have a duty to tell the procurer that this is happening. Can I just confirm that?

They would have, if there had been a change in circumstance, a duty to declare that to us, but in both cases there hadn't been a reason to trigger the 'change in circumstance' requirement.

So, by going to court, that's not a—? Because there's no determination, there's no duty for them to tell you, effectively, that they're going to court, essentially, on some very big and important issues, including fire safety et cetera. There's no duty within our process to enforce that they inform us that they are involved in a legal process.

That's right. So, the—

That is a weakness, then, isn't it? Okay, thank you.

It's at final judgment, yes.

Adam Price.

Let's return to this pre-qualification questionnaire, which, in your earlier evidence, you made clear was a self-declaration on behalf of the companies, yes?

Yes.

What are you, as the procuring authority, required to do under the procurement rules as part of the pre-qualification process to test the validity of the information provided?

The pre-qualification process is self-declaration—that is what it's based on. And then we've got different phases. So, after 'successful participant', we had the 'change in circumstance', and since financial close, we've had the project agreement with prohibited acts. So there have been different mechanisms at the three stages of the process. But it is self-declaration; that's the direct answer.

So, you're under no requirement to test the validity of the information provided at the pre-qualification stage; you just accept it at face value.

The responses are assessed by the relevant advisers, so the way in which the pre-qualification questions were set up would be assessed by different advisers. DLA Piper assessed all of the legal requirements and provided very detailed reporting on that, which was then considered by our trust board before the qualification was confirmed. So, the advice that we've had from DLA is that the way in which they assessed those responses fulfilled their duties as our legal advisers.

Even at that pre-qualification stage, is there anything in a way of a simple due diligence report on the company—a trawl of information giving you a picture of the company and also raising any red flags? Do you get something like that in addition to the pre-qualification report and the legal analysis that you just described?

It is self-declaration, and our understanding is that that is not a particular matter for this case, so that is across all of the procurement regulation that we were following.

I understand that the form itself, the questionnaire, is self-declaration. What I'm trying to understand is whether there is, in addition, commissioned by you, or provided by your advisers, 'Here's a report, we've done our due diligence'. Generally, if you're going into business with somebody, you do a little bit of a background check. Is something like that provided, a general due diligence, using publicly available sources?

That's the purpose of the PQQ. That is, as you know, Mr Price, a very detailed set of criteria ranging from procurement legislation right the way through to financial health and a range of others. That is the purpose of that PQQ process, and as Lauren said, what we have done is followed that to the letter. We then got advice from the best advisers in the UK, as we're aware, to give us that additional level of assurance. I don't think we then commissioned a separate report outside of that, in answer to your direct question.

Okay, but the PQQ itself did not reference either of the court cases that were live. 

No, we were not aware at PQQ.

And, forgive me, just as a layperson, then, I would have imagined that a due diligence report would have flagged up those court cases, but you didn't receive that information at that stage from any of your advisers, did you?

No, and our understanding, based on the legal advice, is that is not the process and not required.

You said that you became aware of the court cases at different times. How? Was it a whistleblower? Was it one of your advisers? Or was it one of the companies themselves that said, 'Oh, by the way, we didn't mention this earlier, but there is this court case, and we thought we should bring it to your attention'?

With Sacyr, we became aware through DLA Piper, and they were aware through their wider insight; they have in-house teams in Spain. So, we became aware in July 2022 through them and then asked the questions and went through the process we then did with Sacyr. With Kajima, we were aware as a result of an article in the press and a request for comment in 2023, and we then asked DLA to provide their advice at that stage.

But in terms of the legal advice you were provided at the time of the receipt of the pre-qualification questionnaire, there were no issues raised in that legal advice that were matters of concern. 

No.

Did you also obtain legal advice about the answers provided by the Future Health Consortium, as one of its member companies was also fined as a result of the legal proceedings in Spain?

Yes. At the time of the pre-qualification questionnaire, there were three bidders, and the responses for all three bidders were assessed in terms of their answers to those particular relevant points, the two questions that we were talking about, by DLA Piper, in the same way across all three bidders.

In your earlier evidence, in relation to at least one of the cases, you mentioned the fact that you knew about the case, I think, at the time of the announcement of the successful consortium, which was when, in July—

In October—

In July 2022, yes?

Yes.

Yes.

Yes, sorry, in July. Apologies, yes.

Right, okay. At that point, then, Sacyr had been fined earlier that month, yes? But you talked about a period before the issuing—. So, you made the announcement, but then there was the issuing of the—. What did you call it?

Successful participant letter.

Right, okay. And in order for the process still to go forward, they had to appeal during that period.

They had to confirm that they had appealed within the time frames of the Spanish courts.

Okay. For that to apply, then, it wasn't that they could simply announce their intent to appeal, they had to formally lodge an appeal, yes?

It was part of the requirements in the successful participant letter that they appealed within the time frame and provided, then, any further 'change of circumstance' notification to us.

Right, okay. So, in this context, then, it's always the formal appeal. You can't simply say, 'Well, I contest this and at some point I may take it to court' or whatever, you've actually got to, within the timescale, within the deadline set down by the court, lodge that appeal, otherwise, then, the process is fine. 

Yes, there's no theoretical standstill period, it's within the court time frames of appeal for both jurisdictions.

Okay. At the point that you made the announcement, though, they had not lodged that appeal, but you allowed that period up until the successful tender letter for them to make that appeal. Okay. Did you exercise your right—? You have a right to amend the pre-qualification questionnaire if new information comes in, is that correct, or to ask for an amendment to it?

That's not my—. I can double-check on the technicalities, and get back to you. My understanding is that we are not able to amend the pre-qualification questionnaire post event, but that's my understanding. I will confirm—

That would be my interpretation, because it could be seen to be unfair if you found out some information from one party, but we will confirm—

But whether or not the right exists, then you certainly didn't exercise it.

No.

Okay. Why did Arup, one of the members of the Acorn consortium, withdraw?

Would I be able to say that in private? Just in front of the public, several companies have been involved over the lifespan of this particular project. The company referenced provided engineering support during the competition phase of the project, but they left in a mutual decision between the consortium in 2023. But we can certainly get into more detail in private, if that would be helpful. But, of course, it's not really a matter for us. We're the procurement authority, so what we want is a very good partner. Matters of a commercial nature are for those partners, but I'm happy to take any further questions in private if that would be helpful.

I have no further questions at this stage, Chair.

Okay. Thank you very much indeed. Again, can I remind you that we've only got 20 minutes, officially, left? Would you be able to stay for another 15 minutes?

Yes, of course.

Absolutely.

Thank you. And we'll have a short private session to answer that and any other matters that might come up in the remaining 20 minutes. So, could I bring in Mike Hedges, please? 

Diolch, Gadeirydd. We've talked about exclusions quite a lot and the ability to do so. Can you explain the grounds for exclusion under the regulations and whether any of these applied at any time in the procurement process?

The grounds for exclusion—. There are a number of grounds for exclusion. In terms of the relevant two that we're discussing here, it would be around criminal action or distortion of competition. So, there were no grounds for exclusion through the whole process, and I don't know if we want to come on to self-cleaning, but we undertook further assurance measures, over and above what we were required to through the process, to provide further assurance if the cases had progressed.

Thank you. Did your legal advice tell you that you could not use discretionary exclusion?

So, our legal advice is there were no grounds for exclusion.

Did you try and exclude the Acorn Consortium on any grounds, once you were aware of the legal proceedings against Sacyr and Kajima?

No, we did not.

What, if any, other options were available to you at this stage of the procurement process and why was it not possible for them to be taken forward?

So, as we've discussed already, for Sacyr and Kajima cases, both were still and are still live, both were still live through the procurement process, and then we had the additional matter with Kajima in terms of the entities. Even though that was the case, we asked whether both organisations would participate in a self-cleaning process with us. They were not under an obligation to do so, but both did, because what we wanted to ensure for our trust board—and, at this stage, we appreciated that there was wider stakeholder concern—was that, if the case had been found against Sacyr during the process, the next step in terms of the procurement regulation would give them an opportunity to evidence self-cleaning. So, rather than just waiting for that to happen, we undertook that exercise proactively with both organisations.

One final question from me: do you know how long the appeals procedure can go on?

We're not expert in that. And we've had some insight recently from Sacyr that they don't expect the appeal to be heard imminently.

Okay. Thank you very much.

Thank you very much indeed. Natasha Asghar, I'll bring you back in.

Thank you so much. I was going to ask you a bit about self-cleaning, so I'm glad you brought that up yourselves. Obviously, you've explained in the response you gave to Mike Hedges that you were the ones who instigated the self-cleaning. So, just to give a bit more clarity to the committee, what's your definition of the need for having a self-clean? What do you constitute a self-clean as being?

So, if the case against—. If we stick with Sacyr, because there's a complication with the entities with Kajima.

That's fine.

With Sacyr, if the case had been found against through the appeal process during the procurement stage and then that was the final decision, the next stage in the process, under procurement regulation, is that they then have an opportunity to evidence self-cleaning. So, self-cleaning, it is set out, in regulation 57(15), in three parts. So, the first is the requirement to have

'paid or undertaken compensation in respect of any damage caused by the criminal offence or misconduct';

the second is the requirement to have

'clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities';

and the third is to undertake

'concrete technical, organisational and personnel measures that are appropriate to prevent further criminal offences or misconduct.'

So, the definition of self-cleaning is set out in the regulations in that way, and we undertook an exercise, as I said, with both organisations, for them to go through, as if they were evidencing a self-cleaning exercise to us, and that was then independently assessed by DLA Piper, the results of which were shared with our board for full decision then in terms of whether that met the requirements of self-cleaning, which the advice of DLA was that it was sufficient in both cases to have met the requirements.

I'm not having a go at DLA Piper in any way, but has it ever come about that it would be worthwhile to get a second opinion when doing such a self-clean? DLA Piper—. Like I said, I have nothing against their integrity; I'm not questioning them in any way. I'm just saying, if you have a pain in your arm, you'll go to the doctor and the doctor will say, 'It's nothing; it may be a muscle pull', but it continues and you may go for a second opinion. In this instance, has it occurred or has it been a thought that's come in anyone's mind to have a second opinion? 

I appreciate the way you're asking the question. There's no requirement to do so. It's not something that has been part of the process, to have a second legal opinion. With the self-cleaning process in general, the whole process was a proactive exercise that we undertook, because even though, as we've been talking about so far, it was really clear in terms of what the requirements from procurement law were and that we'd consistently followed them throughout the process with appropriate advice, there was concern from members of the community, from other stakeholders, and so we wanted to explore what else could we possibly do to provide assurance, and that's why we undertook the self-cleaning process at that stage.

Previously, you said that the self-cleaning measures undertaken by Sacyr and Kajima were sufficient to demonstrate compliance with self-cleaning provisions. What evidence did they provide to demonstrate their reliability, despite the existence of a relevant ground for exclusion? And I know we have mentioned DLA Piper previously, but who assessed the adequacy of the self-cleaning measures to ensure compliance with the requirement of the Public Contract Regulations?

So, in terms of the three elements of self-cleaning, they are requirements under the procurement regulation, and both Sacyr and Kajima provided evidence that all three had been satisfied. That was then independently assessed by DLA Piper. So, there was significant detail in terms of the measures that they'd taken in their respective organisations that was provided.

Okay. Final question from me: were self-cleaning measures the only option available to you at this stage, and, if not, what else could you have done?

So, at that stage, as I mentioned, we were and continue to be clear that we were following everything that we needed to, and we explored what else could we do to provide assurance, and this is the mechanism that we decided could provide that further assurance. There were no other mechanisms presented to us that we could explore that we turned down. This was the most robust way that we could go over and above what we needed to do to try and provide that assurance.

So—

Sorry. And the board was really important at that point, because, as Lauren has mentioned during the discussion, the minimum didn't require that. Our board, quite clearly, as a public sector organisation, wanted to do as much as possible to give us more assurance. So, we took that extra step, which, if you followed the letter of the law, isn't required at this stage. So, it's really important that we've done as much as we possibly can, given Lauren's discussion earlier that this is still a live procurement and we followed due process. So, we've gone over and above what we can reasonably do at this moment in time. 

Okay. Thank you, Chair. That's all from me. 

Thank you. Can I bring Rhianon Passmore back in, please? 

Thank you, Chair. Moving on then to the additional provisions the trust included in the project agreement and the role of the Welsh Government mutual investment policy officers in that inclusion, and the consequences of the Acorn Consortium's non-compliance with them, if that were to be the case, my question is: you said the additional provisions in the project agreement require—require—the Acorn Consortium to keep the trust informed of any developments—and obviously we've talked a lot about the developments that have been ongoing iteratively, in terms of the court situations—so, to keep the trust informed of any developments about the Sacyr decision, but with, and I quote, 'important potential consequences', if they don’t comply with this undertaking. What are, then, those consequences if they don't comply with this undertaking, and I mean Acorn Consortium? What are the consequences if it fails to comply with the requirements, and what are the implications, including potential costs, for the trust as a result of any non-compliance?

Thank you. In the project agreement, the relevant matter that this would come under is prohibited acts, which include criminality, distortion of competition, in a similar way that the PQQ did; under the project agreement, it’s under prohibited acts. So, that is a MIM standard form part of the policy that we have included within the project agreement. So, if either case goes through to final judgment, final decision—. As I said, if we stay with Sacyr, in terms of the technicalities of the entities involved in Kajima aside—. So, with Sacyr, if the final judgment is against Sacyr, we would then pursue under the prohibited acts part of the project agreement and the contract could be terminated then as a result of that action. That would go through its own legal process.

Right. So, there is provision in terms of the prohibited acts for any non-compliance within the project agreement if that does occur. In regards to the situation to date, in that you found out from newspaper clippings, and by default, about the ongoing criminal cases being pursued or being appealed, this seems to be a bit of a non-disclosure situation in my view. 

I'm going to move on. Finally, you said these additional provisions were included in the project agreement

'upon consideration and approval of the Welsh Government Mutual Investment Policy Officers.'

Obviously, bearing in mind that this is an evolving model, can you expand on who instigated adding the provisions and what role did the Welsh Government's mutual investment policy officers play? If you could speak to that. And finally, are the mutual investment policy officers employees—if you can answer this—of the Local Partnerships company?

So, the MIM policy officers are a Treasury Welsh Government function. The way in which the governance operates includes the MIM transactor from Local Partnerships, and it effectively operates as a governance of derogation from standard form of the MIM policy. So—

Sorry, I didn't quite catch that. I don't know if I misheard you. So, the mutual investment policy officers, they are employees of the Local Partnerships company, did you say?

No, they are Welsh Government Treasury.

Right, thank you. Sorry, I interrupted you.

No, no, sorry. So, the way in which—. As you asked about the inclusion of the change-in-circumstance requirement within the project agreement, any derogation from the MIM standard form policy is governed through the MIMPO, the MIM project office, governance of which—. I will just explain: so, the MIM transactor is part of that governance as well and the authority attends, and all derogations to the MIM standard form have to be approved through that route. So, in this example, the requirement for—. The additional requirement for a proactive change-in-circumstance notification to us was included as a result of that MIMPO process.

Thank you. And I'm not sure I got this part, because it was a very long question, so, apologies: the additional provisions included in the project agreement—do we know or do you know who instigated adding those provisions and the role of the Welsh Government mutual investment policy officers in that? Is there clarity for this committee as to how that was inserted?

It was on the basis of the legal advice from DLA and as an authority and the Welsh Government together, because we shared the concern that we didn't want to be having to proactively, as an authority, check on these cases all of the time as we go through the process. So, we wanted to ensure that that responsibility was on Acorn, and so it was through legal advice that that was something that we then put forward as a derogation and then was agreed in the negotiation of the PA by Acorn readily—

Thank you. And, obviously, it is an iterative process, but one would have thought that would have been inbuilt at the start. Okay, thank you very much, Chair.

Thank you very much indeed. Adam Price, again, please.

I was wondering if you could give us your understanding of the latest position in relation to all of the legal cases that you're aware of involving Sacyr and Kajima. Let's start with Kajima, shall we?

Yes, to start with Kajima, the case is with the Court of Appeal, and that is still the situation. We've had conversations this week with the directors of both Kajima and Sacyr to ensure that, before we came to give evidence to this committee, we had information that was hours old rather than anything more, and that is the situation with Kajima.

Just to clarify, I think there are two separate cases, aren't there, involving Kajima. They're related to the same underlying issue, but they are on separate tracks. Can you just clarify the difference in both cases? Where are they currently?

Yes. Both cases are still with the Supreme Court.

So, in relation to the individual, the employee case where the Tokyo High Court dismissed the appeal, 2 March 2023, that has been appealed, has it, to the Supreme Court?

Yes.

Which is the final stage.

Which is the final stage.

Generally speaking—I did my own homework before I came here, as well—there are no set timescales, but, generally, one would expect a Supreme Court hearing to come to court within a timescale of a year to two years, so we would expect that Supreme Court hearing fairly soon. Is that your understanding?

The insight we had from the Kajima director was that they weren't actually sure in terms of time frames. I'll come on to Sacyr—they seem to have some more insight. But, with Kajima, they hadn't heard anything further that I can share.

Okay, and what would be the consequences if, at that final stage, the company lost that case, for this procurement?

So, with Kajima, there would then be no further action, because the entity involved is not part of the consortia nor a guarantor.

So, why are you even having a conversation with the company about it, then?

Because there's been so much concern raised about it all the way through since 2023. So, ever since then, we've been trying to provide as much assurance as possible and to explain the situation. But the outcome would be that it would end at that point in terms of the trust.

If the company was found guilty by the Supreme Court of a very serious charge, do you, as a public authority, have the discretion at that stage to discontinue the contract?

No, because that entity is not part of the consortia that the project agreement prohibited acts cover.

Do you not appreciate that it will have an extremely negative impact upon your reputation as a public authority and, indeed, of the wider public sector if you were to continue with a relationship with a company found guilty of a very serious allegation—the parent company—by the Japanese Supreme Court?

As I said earlier, our reputation is sacrosanct, as is that of the NHS in Wales. I think what Lauren's described is that, again, unfortunately, going back to the process we followed, the process gives us the result and that company is not directly involved in this contract. So, we're mindful of the points you've made. We've taken many additional steps, as Lauren has described today. I'd rather be sat in front of you sharing what we've done with the committee so far and describing the additional steps we've taken, because of the points you made about reputation and public money, than saying, 'Actually, it's nothing to do with them, so we haven't even got in contact'. But, as Lauren has described, that is the law, that is the process, that is procurement legislation and that is what we followed to the letter.

Well, certainly, we'll take our own legal advice. I find it a surprising set of circumstances that a Government, for example, and you as a public authority, as part of Government, could not take action under these circumstances when a company was found guilty of a very serious—very serious—allegation, indeed. But I'm sure the committee will want to take its own advice on that.

What's the latest position in terms of Sacyr and the case—the very serious case, again—against it?

So, that is that the appeal, as at October 2022, is in the same status as it was when it was lodged then, in the Spanish system. And the insight we had this week was that Sacyr are not expecting there to be a judgment for some time. So, they didn't mention years, but, clearly, that's a hearsay, second-hand matter in terms of what they're expecting.

And, following your evidence earlier in response, I believe, to Rhianon Passmore, in this case, if the Supreme Court, I presume, in Spain did find against the company, there would be consequences.

So, because this entity is directly involved as a guarantor in the consortia, if the case goes against them as the final judgment, then the next step in the process would be an opportunity to undertake self-cleaning and evidence that to us, which is why we went through this proactive assurance process, to understand, if we did get to that stage, what would be the likely outcome, which is what we also did with Kajima. I appreciate I'm going back to that, but, even though they're not an entity in their consortia, we understand the public concern around it, and so we wanted to ensure that we'd undertaken that due diligence in terms of the self-cleaning process with them in the same way. So, with Sacyr, they would have an opportunity to undertake self-cleaning and evidence that to us. Even though they've done this exercise proactively in the past, we would start that live and go through that with them. And if they were able to evidence that sufficient self-cleaning measures had been taken to satisfy all of the requirements, then it would be likely that we would continue with that organisation. If they didn't, that would be grounds for termination of the contract at that stage.

And just remind me, what are the allegations against Sacyr?

It's collusion of a number of Spanish construction organisations in the procurement of public contracts in Spain.

So, in a procurement context, these are the most serious allegations that you can make against a company. So, if they were found guilty of this, then they would be found guilty of a very serious crime in business and financial terms.

I just wanted to ask, finally, given, as you said, the very real public concerns that there are about these companies, do you now have a standing contract with someone that actually is providing you—not from the company—with further information? If there are other allegations against these companies, I presume you'd want to know about them. So, do you have something now in place to provide you with that kind of information?

So, as well as the requirements on the organisations themselves that we’ve included in the project agreement to notify us of change in circumstances, which a new judgment would come into, we’ve also been proactive through the process in confirming, prior to financial close, et cetera, that there had been no change in these or any final judgments against the organisations.

So, are you aware, for example, that, in September this year, the regional Government in Murcia announced its plans to pursue legal action against Sacyr in relation to funds lost because of a project involving Corvera Airport?

That isn’t something that we’re aware of. We can confirm why it’s appropriate we’re not aware, if that is the case in terms of the entities involved. From what you said, it was the start of a process, which, throughout all of this, there is not an obligation to inform us of the start of a process.

I think that case involves a dispute in terms of the timescales involved in the project and the losses that accrue from that, but I would imagine, in terms of your wider responsibilities, it would be of interest. Are you aware of the—[Interruption.] Sorry—yes, sure.

Our absolute primary focus is on the trust and NHS Wales’s business, but I absolutely take your wider point that these things are connected. We would want to absolutely focus on what we need to get done to deliver one of the best hospitals, we hope, in the UK. But, secondly, and as important, we also want to make sure we have sufficient, as Lauren said, insight into what’s going on so we get this general feel, and if we need to ask any further questions then we’re better informed. But I’ve got to be clear that we’ve got to make sure we deliver what we said we’d deliver within the contract, within the rules, within the process, within the systems, and with our board’s support. That is absolutely what we have done to date, and we will continue to do in the coming years.

I’m wondering as well if you’re aware of the Emmasa case in Santa Cruz de Tenerife. That involves, essentially, Sacyr having acquired a 95 per cent stake in a water management company in that city, and they paid €59 million for it, but it subsequently has come to light that they were receiving payments totalling €33 million over 14 years, and the city council has now stopped those payments. Indeed, there is an investigation for alleged crimes of prevarication and embezzlement of public funds involving that decision between the previous administration of the city and Sacyr. Again, there hasn’t been a final judgment in that case, and I’m not aware of the legal action surrounding it, but, you know, does it pass the smell test? When you have all these different allegations made about a company, doesn’t it really give you a lot of cause for concern?

I think, already throughout the conversation this morning, Lauren and I have been clear to say that there are concerns and we’ve acted upon them. The second part, really, is that that’s where process is our best friend. I’ll take the reputation secondly. We have followed the process, we’ve taken advice at all the appropriate times, we’ve shared that advice with our board, with the Welsh Government, with external regulators, and that has taken us to this point. I can’t directly address all the points you make around the other cases, but clearly we will reflect upon that.

But I do go back to the point that we are working very hard to deliver what we said we’d deliver for the cancer service in south-east Wales. I know this important conversation this morning is focused quite rightly on the procurement aspects, but, quite clearly, there is the health-system aspect as well amongst this. Now, they aren’t trade-offs. We’ve got to do that while sticking within the Nolan principles, all the regulations, the policies, the procedures, and I can honestly say I believe we have. That's where we're at, and that's what we will continue to do for the next months, years, decades, to make sure that we get this project delivered on time, to cost, for a great facility to improve cancer care and clinical outcomes, but also fully recognising and also sharing our concern that some of those reputational things we do need to be mindful of, because they are absolutely of concern, aren't they?

No further questions.

Thank you. Rhianon Passmore has one final quick question.

One final, quick question for clarity for the committee. Bearing in mind the newness of this particular procurement mechanism, has DLA Piper undertaken assurance self-cleaning on this scale before? Because you're relying a lot on that. And then at what point or date did the project agreement declaration of change in circumstances and what we've just heard kick in? At what level do bidders need to update you? I would presume anything legalistic they would need to update you on. So, two quick questions. 

So, DLA Piper have significant experience across public-private partnerships, as we outlined at the start of the conversation, internationally and in the UK, and are the legal advisers across the current three MIMs. Welsh Government—

So, the question is basically: have they undertaken self-cleaning on this scale previously? So is that a 'yes' or a 'no'?

Sorry, I'm not clear in terms of the specifics in terms of DLA's frequency that they undertake this. It's a requirement and a standard part of the procurement process and they're specialist procurement lawyers, but I don't want to guess at frequency. 

Okay. We're just seeking assurance on that. And the second part is: at what point does the project agreement around self-declaration in terms of, for instance, court cases—? Is there a date whereby the bidders have to comply with that, bearing in mind what we've just gone through in terms of questions? Is there a cut-off date?

So, the requirement in the project agreement to notify of any changes of circumstance is for the duration of the project agreement, so that's the three-year construction period and the 25-year session. So, it's over the next 28 years that that is in place, from financial close.

Yes, my question is when did it start, so was it six months ago, three months ago, a year ago or from today? 

It was financial close—at the end of March 2024, when the project agreement was signed. 

Okay, that's enough. Thank you, Chair. 

Okay, and one very short final question in open session and then we'll close for that final private question. I think Mr James earlier referred to a few lessons learned. What, if any, further lessons have you learned from this process, and if there are any, how, if at all, will these be shared across the public sector to enable wider learning? 

Thanks, Chair. Just a couple of points to summarise, really. I think there are always lessons to be learned. I think the important point for us, as we've spent the last hour and 15 minutes describing, is we're confident we have followed the procurement process to the law. I think there's always learning, as Matt mentioned earlier. What we will be doing with Government, as part of any business case anyway, but a key part, is lessons learned in post-project evaluation, (a) to understand you've delivered the benefits that really justify the investment, and then, secondly, the things we could do better. NHS Wales clearly has got an improvement ethos, so there are a couple of things we are already doing. Matt mentioned earlier some of the work that's been done on equipment. We've already, as part of the wider programme that you hadn't touched upon this morning, commissioned and bought about £80 million-worth of new integrated radiotherapy systems. So, lessons learned have been done on that, and we fed that into colleagues across NHS Wales.

Secondly, there are some policy things we can have a conversation with Government about, about the MIM policy, because we're one of three pathfinders. I think it was ourselves, twenty-first century schools and the A465, so I'm sure there'll be lots of learning about how we improve that as a policy. And last but not least, once we get to the end of this process in terms of construction, I'm certain there'll be lessons learned, and quite clearly we've got a whole range of partners—shared services, other health boards—who will want to know how we're getting on in terms of the construction of the hospital itself and how we operationalise that. So, we've already learned lessons ourselves from the hospital in Gwent, the specialist and critical care centre, and we'll pass on anything we learn for the wider NHS and public services. So, that's what we are already doing, and we'll set up various processes to take that forward over the next months and years.

Okay, thank you.

Well, I now propose, in accordance with Standing Order 17.42(ix), the committee resolves to meet in private for the remainder of today's meeting. Are Members content? I see that Members are content, so we're grateful if we could go into private session.