Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 400-419)

MR PADDY DOYLE, MR SIMON PILLING AND MS DENYSE METCALF

WEDNESDAY 13 FEBRUARY 2002

Chairman

  400. Mr Doyle, we are bending over backwards to be fair in this, but we have to ask the questions that our constituents would ask. They would say, "We thought this was a £50 million contract. Perhaps you will tell us how much it ended up being worth to you." If 1 million gets to 2 million, and every new subscriber gives you an income, questions would be asked, would they not, whether you did not want to pull the plug on this or blow the whistle because it was a nice little earner?
  (Mr Pilling) You need to recognise that we won this contract through a competitive tendering process. There are other organisations that bid for this work. If as an organisation, as you are putting forward, we would in some way make more money with each account, that sounds ideal. However, what holds us back from that situation is the fact that we go through a competitive tendering situation. If you do that, you will be too expensive and you will lose the deal. What you have to do with these sorts of deals is take a view of where you think the most likely position is going to be in terms of account holders, and that is our risk. That is how you win the deal. So you take a view that it is a million or a million and a half, and you have to price it in that way. Another organisation may take a view that it is 1 million or 2 million, and they price it in that way. The client, in this case the DfES, gets best value from organisations like us taking a risk on what the volumes will be, and that is what has happened in these sort of cases. You cannot have an open-ended situation where if we get to 2 million or 3 million we are going to make lots more money, because we will immediately have excluded ourselves at the point of going for the procurement. It would be too expensive.
  (Mr Doyle) If I can just make one more point as well, the process of the volume-based contract is about making sure this could not run away and a contractor is left with a big hole. The profit element, whether it went up to 5 million accounts or whatever, the idea is that we cover our costs. The profit element that we make, the percentage profit, should not change. It is open book. The Department have our accounts to audit every year to make sure we are not making super profits out of this. It is not meant to be such that the more comes in, the more money you will earn. It is meant to be a protection.

Mr Chaytor

  401. When the numbers of account holders increased dramatically, this was still to your financial advantage, because if it had not been, if you were incurring additional costs by the need to recruit huge numbers of extra staff, you would have flagged it up much earlier to the Department because you would have been losing money.
  (Mr Doyle) In the long term, in real pound note terms, you are correct; we would have made money. Our declared profit margin is 14 per cent. Fourteen per cent of £10 million is one figure and 14 per cent of £20 million is a different figure. So in real terms you make more money. That has not been the case to date. In fact, the rapid build-up of the volumes gave us far more problems than expected. As I said earlier, we had a number of problems around service delivery, and in fact fell behind our service level agreements and fell into service credits with our customer through those times because we were struggling to keep up with those volumes.

  402. One more point on monitoring and reporting. In your statement you refer to regular supply of management information and audit reports to agreed schedules. This was your responsibility. What w as the agreed schedule? As I say, how frequently were these audit reports made?
  (Ms Metcalf) Management information reports were passed across on a monthly basis. There was only actually one audit conducted by the Department of our process during that period.

  403. At what point was that audit conducted?
  (Ms Metcalf) It was conducted, from memory, I think in the Spring 2001.

  404. That is precisely the period that saw the 100 per cent increase in the number of accounts opened.
  (Ms Metcalf) I think possibly slightly before that period.

  405. That presumably can be verified.
  (Ms Metcalf) That was a process audit. Yes, it can be verified. I can supply dates. It was to have a look at the processes in place.

  406. In terms of the monthly management information reports, were they linked to the regular meetings you held with officers of the Department?
  (Ms Metcalf) The meetings were far more regular than the reports in actual fact.

  407. Did the meetings consider the reports?
  (Ms Metcalf) The meetings certainly considered the reports and the meetings also considered additional information which had been passed across. We had, over and above the reports, a process for passing across information where we were concerned or where we had had complaints from individuals, and there was a process which we followed which the Department had set out in terms of following up complaints and we passed across those instances quite separately from the regular monthly pack.

  408. So those meetings took place more frequently than the ones at monthly intervals?
  (Ms Metcalf) Yes.

  409. And were those meetings minuted?
  (Ms Metcalf) Most of those meetings were minuted, I believe.

  410. And you would have copies of those minutes as well as the Department?
  (Ms Metcalf) We would have copies of those minutes, yes.

Chairman

  411. I think the Committee would like to see those minutes.
  (Ms Metcalf) Again I am not quite sure what the status of those is. I think they belong to the Department.

  412. If the Department agrees, you would agree, would you?
  (Ms Metcalf) Yes.

Paul Holmes

  413. There is one very quick question on the contract. You say there was a volume-related element in the contract. Were there any bonus or penalty clauses and, if so, how did they work?
  (Mr Doyle) There were penalty clauses in terms of a service credit regime, so there were service levels agreed which we had to keep up to which were around a whole number of various things and if we failed to do that, then we moved into service credit penalties.

  414. Perhaps we will return to that when we move on to customer service. In terms of the IT security, the Government said on 24 October, when they first said that they were going to close the scheme on 7 December, they set that date and then all of a sudden in November they said, "We're pulling the plug now". The rationale they have given for that in letters which have been publicised and given to the Committee was that on 21 November they obtained a CD disk which had a large number of ILA numbers on which could be used and which was for sale. There has been a lot of speculation about where somebody would get all those numbers which they could then tout around and sell to learning providers. The Government said that is why, because they got that disk on 21 November, 48 hours later they said, "Right, the scheme is shut down. That's it". Have you got any comments about how anybody would get hold of a disk with large numbers of unused ILA account numbers on it?
  (Mr Pilling) I think, as we said earlier, the account number was in fact just a reference number to identify holders in the system. That information in terms of what the account number meant was actually widely available and published on the website. What we have here are instances where learning providers were going in and accessing all the information of names and addresses many times into the system and loading it on to a diskette.

  415. So you are saying? Explain that again.
  (Mr Pilling) What I am saying is that an authorised learning provider with their authorised user ID and password would go on the system and because of the way we held the information, which was as has been said, it is effectively a serial number, they were going in and they were drawing out information from the system.

  416. About one account or they could therefore work it—
  (Mr Pilling) They would then put in more numbers and draw out more names and addresses from the system.

  417. In response to a written question which I put, I was told that most of the numbers were sequential and there was one that was randomised. If you had a £50 million contract to draw up around this scheme, is that a failure on your part in making the system too easy to be worked in that way?
  (Mr Pilling) I think, coming back to the point that we were working under the belief that we were talking about accredited learning providers, if you think about the process of what an accredited learning provider is, we are actually talking about individuals who actually are working for companies that are in some way not bona fide and that is quite strange to us. In relation to this scheme, we were talking about accredited learning providers and that was the basis on which we allowed them into our system and which we have subsequently found out to be untrue.

  418. So you are saying that the numbers were so open for somebody to work out a whole series—
  (Mr Pilling) Not somebody, but for a learning provider.

  419. You are saying that that was so easy to do because you thought the learning providers were bona fide accredited people, but earlier on we heard in great detail from you that you accepted the Government's drawing up of the scheme which had no quality assurance of that kind whatsoever.
  (Mr Pilling) At the time the system was developed, we were working to a specification which said we were talking about accredited learning providers in relation to the Learn Direct system of learning.


 
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