Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 160-179)



  160. What system will you have to make sure that people coming on to military bases to do work on behalf of your contractors or subcontractors are not Russian spies or illegal immigrants and people not paying income tax? What system will you have?
  (Mr Tebbit) Obviously there will be the normal security arrangements in terms of passes and the people the contractor will employ will obviously have to meet certain requirements of ours. I do not think that will change radically under the new arrangements from the existing arrangements.
  (Mr Andrews) I think I would have much more confidence in the new arrangements because, as I said, we will be looking to a prime contractor to put in place a supply chain with which he has worked before, with which he is familiar, where they have standard processes and procedures, where he has confidence in the workforce of those subcontractors. It is the efficiency with which they discharge their work against the contract that will determine what profit he makes at the end of the contract.

  161. It does depend on the contractor having a long-term relationship with the subcontractors and not simply letting to the lowest bidder. I am concerned about the bad driving out the good. We have assurances from you that that will not happen?
  (Mr Andrews) We will select the prime contractor and his supply chain and that team will be contractually locked in.
  (Mr Tebbit) It will be the whole thing, yes.

  162. I wonder if I could touch on the whole exercise and come back to this issue of benchmarking and the point that was made by my colleague about local government. What comparisons have you made of what has been happening today with what has been happening in local government? It does strike me that local government is far ahead of what you have described to us as having been the situation even recently or even at the moment.
  (Mr Tebbit) I think it is very interesting that you should raise local government. I confess, we have tended to look more so far at central government and I am satisfied that with central government departments we are very much in the lead, even on hotlines. One of the reasons I had trouble answering the question was I have been finding other Departments have been asking us about how to set up hotlines, so I have not had very much experience of what other people have been finding to match against. I would certainly be interested in talking to the Department of Health about their hotline and see whether there is anything we can learn in the public sector sense about that. As I say, we have tended to be in the lead. In terms of local government, I really have to say that I am not aware myself, but I do not know whether Mr Andrews can add anything to that[5].

  (Mr Andrews) We have not benchmarked specifically against local government but I would say there are a number of bodies that cross the private sector, the public sector, central government and local government, which are seeking to build a joint approach towards improving processes in the construction industry. The Ministry of Defence is a founder member of the Confederation of Construction Clients, which seeks to do just that. We have a concordat with our colleagues in NHS Estates and we are working very closely with them to benchmark and compare approaches so we can build on the best of both organisations.

  163. Can I follow on from the point my colleague made about breaking windows and your argument that there is not the incentive then to go along and break more. In these circumstances the incentive is for the contractor to provide security so that windows are not broken at all.
  (Mr Tebbit) Indeed.

  164. I am not clear about how this set of issues about prevention comes into this whole exercise as distinct from coming along after the event.
  (Mr Tebbit) As I understand it, in establishing prime contracting there will be agreements at the outset on all of the different output specifications which have to be met with performance measurements on which these are based, with targets and, indeed, with reward sharing. What you are suggesting, that a given level of security should be provided by the contractor, or rather a given level of conditions should be sustained by the contractor, that would be written into the prime contract at the outset together with such details as were agreed about how that is to be done. The answer is that will be part of the contract from the beginning. There would then be open book accounting to show that the costs involved were agreed beforehand, often by reference to a standard cost base that is available throughout the industry as I understand it and will be agreed by both. One would proceed from that. I think you are right that to some extent we will be saying "it is up to you, the contractor, to decide precisely how you want to meet certain performance levels" rather than us specifying exactly how they have to do it. Mr Andrews?
  (Mr Andrews) I think too there is an important cultural change here. Certainly there is an issue about incentivising the contractor to put better windows in that are less likely to break but, as we have described, we are adopting an integrated project team approach to these relationships. We want to build a collaborative working relationship with the user of the building, with our intelligent customer capability, our professional staff, and with the contractor and his supply chain. That team comes together with shared objectives and shared risks and shared rewards because if the contractor delivers a better building more cost effectively, we pay less for it and he would make a better return. It really is building a team to manage a particular site. I would certainly see the prime contractor and his supply chain coming up with suggestions for how the user, by improving the way he used the building, for example, could actually reduce the cost of running it. It is a team approach, it is collaborative working between the user, the procurement organisation and the industry.
  (Mr Tebbit) You might say brick up the windows and put in better interior lighting, I do not know, but those sorts of ideas will be possible with this.

  Mr Davidson: It should be do not break all the windows as well.

Mr Gardiner

  165. Gentlemen, I started off this afternoon thinking is it not a damned nuisance that reports come 18 months after they have been first put out because, of course, it means that you are in a more fortunate position, if I may say, than many who come before the Committee in that you are able to say "well, actually we have made these changes". I have to say the latter part of your questioning has made me think that actually more reports should come at 18 months distance because I think it has raised some fascinating issues. Mr Tebbit, you said that in these circumstances the Works Managers were simply abrogating their responsibility. This was with reference to the estimates. Do you recall that?
  (Mr Tebbit) Yes, I think I do recall that.

  166. But then a few minutes later you said that they were not necessarily misbehaving and, Mr Andrews, you said they were competent people and they were able to do the job. Can I just take you back to paragraph 1.3: "The Department have stated that dishonest and illegal activity will not be tolerated under any circumstance, irrespective of any loss or gain to the Department or others. Furthermore, the Department undertake to investigate all cases of suspected fraud, theft and irregularity and, where appropriate, to prosecute cases or take disciplinary action." I appreciate that is actually talking about fraud, illegal activity, but presumably the MoD does have disciplinary and capability procedures as part of its human resources package, does it not?
  (Mr Tebbit) Yes, it does.

  167. And you are seriously telling me, in Mr Andrews' words, in some cases they may not have been acting to the letter of their job. My God, a coach and horses was being driven through their job. In your own words, Mr Tebbit, they were simply abrogating their responsibility, and yet you tell us that nobody has sustained disciplinary action as a result of that.
  (Mr Tebbit) Firstly, we appear to be talking about one Works Service Manager here.

  168. I am not.
  (Mr Tebbit) Yes, we are. You said we were talking about a Works Service Manager who obtained estimates from subcontractors. I do not know if it is one manager or 30 different managers, I cannot tell you.

  169. What we are talking about here is that the percentage of cases where the Established Works Consultant provided an element of cost were nine, 18 and 35 in low, medium and high value transactions. Are you saying that you are confident that the sample which the NAO based these figures on is wholly unrepresentative of other Works Consultants?
  (Mr Tebbit) No, I am saying that the responsibility for doing the job right is the responsibility of the line manager, of the Top Level Budget holder. He has the responsibility to decide how he is going to make sure that these things are done properly. There are prescribed rules and procedures about how in detail the rules should be carried forward. Here we had cases where Works Service Managers were not operating by the book. They may have had reasons for deciding not to operate by the book, they may not have had, I do not know, but they should not have done it.

  170. We are talking about three sites here, yes?
  (Mr Tebbit) I am sorry, you are on which page?

  171. We are talking about a 91 per cent failure rate in low value transactions and 82 per cent—
  (Mr Tebbit) Which page?

  172. Page 41, figure ten. An 82 per cent failure rate to make estimates in mid value transactions and a 65 per cent failure rate in high value transactions. Now are you saying this is wholly unrepresentative of what is going on in terms of the failure rate to make estimates in such transactions throughout the MoD and that the NAO has plucked these examples out of the air for good measure?
  (Mr Tebbit) No, I am not saying that. I am not assuming that the consultant should have provided estimates in every single case. That is not the requirement. There is a judgment to be made about how often they should produce an estimate. They made judgments in these cases at nine per cent, 18 per cent and 35 per cent.

  173. Perhaps I am mistaken in assuming that figure 9a, which we went through with Mr Steinberg—
  (Mr Tebbit) I thought we were on figure 10.

  174. We are on figure 10 but my understanding was that we are basing this on figure 9a and it went on through to figure 10 but the reason we are basing it on figure 9a is because property management staff based an estimate cost of each job on standard reference costs.
  (Mr Tebbit) Yes, exactly, there may be a standard reference cost.

  175. That is the beginning of the process, is it not?
  (Mr Tebbit) Yes.

  176. An estimated cost.
  (Mr Tebbit) No, I am sorry, a standard reference cost is not the same as the Establishment Works Consultant providing his own estimate of cost. I do not know what percentage was standard reference cost as opposed to this individual consultant doing his own estimate. We know that nine per cent of the low value transactions were done by the consultant, I do not know how many were referred to the standard references.

  177. Let me say this, Mr Tebbit. It seemed to me that figure 10 in there, where it says that nine, 18 and 35 per cent of the transaction costs were estimated on low, mid and high value transactions, was actually an indictment of the Department and its practice, not an endorsement. That was my understanding of what it was there to show, namely what was going wrong. Furthermore, if we go on to read the next paragraph, what we then find is that even in 88 per cent of those transactions where they did meet a building estimate, what you then had was they did it without the benefit of a site survey. This was hardly a glowing part of the report. We are losing track here. What I want to know is why have no disciplinary procedures been done against the people who in your words abrogated—simply abrogated—their responsibility?
  (Mr Tebbit) Various reasons. Firstly, as I explained before, it is delegated to Top Level Budget holders to decide how they wish to do the work.

  178. No, no. Stop.
  (Mr Tebbit) Secondly—

  179. We are not talking about the process.
  (Mr Tebbit) I think you have made your point, I would like to answer.

5   Note by Witness: See Evidence, Appendix 1, pages 25 to 26 (PAC 00-01/169). Back

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