Select Committee on Education and Skills Minutes of Evidence


Examination of Witnesses (Questions 540 - 559)

TUESDAY 26 FEBRUARY 2002

JOHN HEALEY AND MR PETER LAUENER

Chairman

  540. This was for learndirect?
  (John Healey) This was for the Individual Learning Accounts. For learndirect the system is different. To be absolutely clear, for the ILA scheme they were registered providers and not accredited providers, if that is indeed what I said earlier.

Ms Munn

  541. I listened very carefully, I can assure you! For learndirect, the providers registered with that, are there quality assurance and standards they have to meet before they can register with learndirect?
  (Mr Lauener) Certainly when learndirect set up their learning hubs they went through a specification and contracting process, and there was a quality assurance process around that. If the Committee is interested we can send details of that. Indeed, under the remit of the Adult Learning Inspectorate, the Inspectorate is inspecting learndirect provision. That process has started and, indeed, the first results of those inspections will be available shortly.

  542. Certainly from my perspective, and I do not know about the rest of the Committee, the reason obviously you are interested in this, it was mentioned by Capita and they explained the difficulties about the actual technical problems of systems talking to each other. Where our interest would be is around the whole quality assurance issue. We looked at the fact that in the pilot stage, what we have been told by yourselves from the Department, that TECs tended to use providers whom they were familiar with; and, therefore, there was, if you like, if not a written down quality assurance, some inbuilt quality assurance because they were known providers. The scheme was set up to widen the number of providers and we are obviously concerned about the quality assurance issue; the fact that a lot of people coming into learn were people who were not used to learning, and to expect them to do quality assurance, in my view, was unrealistic. If there had been a view that learndirect would be one way of actually getting providers who had some quality assurance and standards there already as part of the thinking of setting up the process, then that is one thing. Are you saying, in fact, it was just incidental that learndirect people had particular standards and that there would be other providers who would be registered. Where are their standards?
  (John Healey) It is not incidental. learndirect is a learning provision system which is set up specifically to provide online and distance learning; and it has the quality checks in terms of its internal contract. It also has the external checks with the Adult Learning Inspectorate . The link-up we were unable to make in the design of the scheme, as you say Capita told you, was about getting the data systems to mesh with each other. You are pursuing quite an interesting point. I am sure the Committee knows but might be interested just to be reminded that in Scotland there is a link-up with the Scottish University for Industry. In these terms, to be a registered ILA provider for Scotland you have to be a registered Scottish UfI provider. In order to be a registered Scottish UfI provider you either have to have or you have to be working towards certain quality standards, such as the quality management system, and that is largely about internal processes. So there is that link there, though not the meshing of the data sets and the sort of benefits I originally talked about. It was the Scottish University for Industry's responsibility to investigate any complaints that arose about ILA-related provision, or ILA-related learning material. There is something of a link-up in Scotland, although it does not introduce the sort of quality assurance concerns that you have, and certainly in terms of the experience we have had with the ILA scheme, that we share. We will need to design into any successor scheme a much stronger provision than before.

  543. In a sense the point I am getting at is, did the requirement for some sort of quality assurance go out of the window when technical systems did not mesh?
  (John Healey) No, because learndirect was not about providing quality assurance, as Peter Lauener said. It was about, first, trying to link up the information so the individual was better equipped with information about the options available to them; and, second, to provide a link-up so that any caller to learndirect could link through into the ILA registered provider system. It was not about quality assurance—but an attempt to explore the link-up before the launch of the scheme.

Paul Holmes

  544. There seems to be a clear contradiction in what you are saying and what Capita told us. Capita said that their software system etc was designed on the assumption that the learning providers register would be authenticated, accredited and so forth. They said because of that that is why it was relatively easy for the rogue trader to get access to the numbers they should not have had, and this is how this disk could come onto the market in November. They said the reason they produced their software was because they were working from the start on the assumption that all learning providers would be accredited. They gave us the clear impression, because we were asking about it in quite some detail, just as the scheme was about to go live effectively they discovered that the software systems could not talk to each other; that, therefore, anybody could register with their name, address and bank account number. Capita were quite clearly saying that the scheme was fairly open to abuse by training providers who turned out not to be legitimate, and it had actually been designed to be relatively light on security because all along they worked on the assumption, right up to when they started, that training providers would be accredited.
  (Mr Lauener) I think there are two separate points mixed up in that. The first is that there was a very clear decision, as we have said, that this was a light touch programme with very little quality assurance to make the market work. The reason for that is that we expected that there would be a lot of providers brought into the system, as there were, and we expected that they would be fairly low value in terms of transactions, and that therefore to apply the more traditional quality assurance mechanisms on top of that would be a very high on-cost on what we expected to be low-value transactions. That is one issue. We were quite clear on this issue in the memorandum that in a successor scheme we needed stronger quality assurance arrangements. The second issue is about getting the systems talking to each other. I think there was perhaps a bit of confusion in the way that Capita described the process, the original expectation that we might be able to get the learndirect information system and the ILA system talking to each other. That was in the original contract specification that was signed in November 2000, but that proved not to be possible. I do not think that had that proven to be possible, that would have been the answer on quality assurance, because that would not have brought the quality assurance on its own, we would still have needed to design a quality assurance. So the problem is not that the systems did not speak to each other; the problem is the decision on the light-touch quality assurance system, which brought benefits—benefits which we want to retain—but also brought some problems.

  545. Can I also ask you the question we put to Capita as well on this? Capita were chosen as an expert company to design and deliver this system. It says in the memorandum here from the Minister that Capita were tasked to provide a robust and functional system and then to operate it. We said to Capita that this system was clearly not robust or functionally stopping abuse, scams, fraud, whatever, and so forth. We said to Capita, "Why didn't you say to the Minister, to the Department, right at the start, "Yes, we can run this system the way you told us to, but it will be wide open to abuse'?" We said that Capita should certainly have spotted that, because they were telling us in their prospectus which we have that they run housing benefit schemes for various local authorities, so they would be very, very much up on the idea of the fact that people out there will try to defraud this sort of scheme. Capita came back essentially to the point, as I said at the start, that they thought that the learning providers would be accredited, would be legitimate, would be honest, and that is why their system was so open to abuse. If you chose Capita and paid them £50 million because they are so good and they are so cheap, did not somebody fall down there? Why did not Capita say to you, "This scheme is wide open to abuse"?
  (Mr Lauener) Again, in the "Lessons to Learn" bit of the memorandum we have drawn out some points about security in the system. We are quite clear about this, and in fact this is a point we have discussed with Capita in preparing the memorandum. We wanted to make sure that we agreed about the way that this was described in the memorandum. We are quite clear that any future programme will require stronger security measures, in terms of specification, in terms of the architecture and then in terms of the management of security once a system is up and running. So we were quite clear that it needs to be better. Whatever the quality assurance arrangements, we need stronger security. There is certainly a balance and a bit of a trade-off, but it is not that if you get much stronger quality assurance then you could run with the same kind of security architecture. You need both in any new programme.

  546. So everybody is accepting now that this has to be built into the next scheme, but surely when this scheme was designed, why did not (a) your Department take notice of Treasury publications on fraud, electronic fraud, etcetera, why did not you spot that it was wide open to abuse, and why did not (b) Capita, an expert firm that you paid £50 million to provide a robust and functional system, say to you, "Look, this is open to being ripped off"?
  (Mr Lauener) It is very easy looking back now and saying we can all see the problems which have happened and we can all see some of the things that we should have done to prevent them.

Chairman

  547. No, Mr Lauener, it is not easy looking back.
  (Mr Lauener) It is much easier looking back than looking forward.

  548. The question my colleague is asking is that we all know that in the service provider agreement with Capita originally there was going to be quality assurance. You took that out because they could not meet the deadline and you wanted to get the programme up and running. We understand that, and that was the decision, but in terms of security, my colleague is absolutely right, one would have expected the contract price for Capita, and we are fascinated by all this because many of us on this Committee want to see these public/private sector agreements work and work well, but in this case, certainly in terms of the security, you would have expected Capita to have given better advice in terms of how to make the system secure, would you not?
  (Mr Lauener) Perhaps I can make three points on that. The first is that the point I was going to come on to in relation to security is that there is a whole nexus of points in "Lessons to Learn". The other one that I would draw attention to here is the definition of "business model". Had we drawn out the business model, not just defining the processes as we did, but defining the responsibility of different partners and the role of different partners as the business process worked through, then I think we would have been able to test better the programme that we developed in order to develop the possible security problems and then to develop countermeasures. Looking back, I can say that that was not done, and that is one of the lessons that we need to build into a future programme. That will allow a better definition of both countermeasures and management information. On top of that, I am quite clear that the system, in terms of access to providers to navigate around the system, needs to be tighter than it was in the specification.

  549. So as a consumer you are perfectly happy with the level of service and the quality of service you got from Capita?
  (Mr Lauener) What I have described is a system that did not deliver the level of security that we wanted.

  550. No, Mr Lauener, you are the consumer, you were spending a lot of our constituents' money on this process. Were you happy with the service and the quality of service which you got from Capita?
  (John Healey) Let me answer that and be blunt. No. There were shortcomings in the security of the ILA system, shortcomings in the specification, which is certainly the Department's responsibility, drawing, I have to remind the Committee, on external expert advice, on the guidance internally from Government as well as some policy specialism that our officials brought to it as well. So there were problems with the specification, but there were also problems and shortcomings, in my view, in the provision of security and the management of security once the system was up and running. That is a matter between the Department and Capita, but clearly Capita were the expert technical specialists that we hired in this partnership to deliver the system, and I have to say, on a very positive note, that we have worked very closely and very constructively with Capita to try to get to the bottom of what was going on. We are talking very constructively with them also about the lessons that we need to draw from this, and we are exploring with them, as we are with, for instance, the Learning and Skills Council, options that we might have for the delivery of any successor scheme.

Mr Pollard

  551. Two weeks ago I asked Capita—who are coming to see us again tomorrow—about their expertise in housing benefit. This follows on from what my colleague Paul Holmes said about housing benefit procedures. There is great expertise in this all over the place. I know from my work with local councils over the years that with housing benefit there is a lot of fraud there, massive forms to fill in and all that, yet on this particular scheme a one-page form only to get access to the money. My question to Capita was that with their expertise in all of this, they should have realised that this scheme was absolutely wide open to abuse of all sorts. That seemed to be the case if you look at your Annex 1 which said that in one month the number of complaints doubled and the proportion doubled as well. That clearly was a time when you said, "Well bugger this, we've got to draw the line under here and stop this." I understand all this. Who designed the form? Capita said, "We just did what we were told" virtually last week when I asked them. Therefore, was the contract wrong? Was it too sloppy? Who designed the form, and did you approve the one-page form at the end of the day?
  (Mr Lauener) I am not sure whether I can say in detail who—

  Mr Pollard: I do not want the name or anything like that. Was it your department or was it them?

Chairman

  552. Or was it KPMG?
  (Mr Lauener) I think—but I would have to check—Capita designed the form against the specification because they designed the business processes that would make the ILA programme work. I would have to take that away and confirm that, and I will do that in a note. Again, we are clear that the set of systems and processes that need to be put in place need to be more robust in future, and that is the start point. What we must not do is just default to the set of systems and processes that are in use for what are generally much larger volume and value contracts, because that would result in too heavy an on-cost on the programme and make it much more difficult to achieve the involvement of new, small-scale niche providers, many of whom have done an excellent job on this. So we do need to find a new balance on this but we do need more robust systems and processes across the piece.
  (John Healey) I quite understand the Committee's desire to, in a sense, get to the bottom of this and be able to point a finger at, perhaps, one party or even one individual, but the nature of the development work, as I have examined it and understand it to have gone on, was very intense, very much developed between the department and Capita, with other advice and guidance. So, in a sense, who designed the form is perhaps not the question. It was clearly an effort that would have been done between the department and Capita. The two questions that are relevant, if I may suggest, is who is responsible for it and then, I think, I would have to say the department would have signed off that form. Second, whose expertise was drawn on in developing that form in order to provide data to service the design of the operating systems. Clearly, whilst that was, again, jointly determined we were drawing very heavily on Capita because they were clearly our specialist technical suppliers and they were responsible for the operational design and then the operational management of the ILA system.

Mr Pollard

  553. I would have expected Capita, with their vast experience—where I started from—to say to the department "Look, this system is open to abuse." It is where I started from. Did they ever say "Hang on a minute, look at housing benefit, look at the trouble we had there."? I accept the point you made that you have got to be careful, this is £200, not £200 a week, it is a one-off £200, so you do not want a system that costs £5 million to administer, you want it to be reasonable and proportionate. I accept all of that. Did they draw to your attention that this was potentially open to abuse and then come back to you in the last month and say, tongue in cheek, "Well, we told you so, didn't we"?
  (Mr Lauener) In the design stages we were, as John Healey has explained, in it together and neither of us said to each other "We are designing a system that is going to be wide open to abuse". If we had done that the chances are we would not be here today quite in this way. In the subsequent monitoring and management of the programme, we sent some supplementary notes with minutes of various meetings between Capita and the department, which are quite hard to follow because they are all out of context, but they are designed to give a flavour for the way we discussed and managed things together during the programme. There were several times when we were discussing problems together and we discussed some of the earlier problems when there was no cap on the 80 per cent discount and what we should do about that, and the information that was coming through. From about June onwards we were in almost daily discussion about how we could design out the problems and Capita made a number of very good suggestions about how we could tighten things up, and we implemented a lot of these in July and over the summer. Despite going through all that, we then reached the point in the Autumn when we thought that this was a series of sticking plasters we had been putting on a programme that was fundamentally flawed. Indeed, there were a number of providers who, as quick as we were moving to try and clamp down, were moving quickly to get round the things we put in place. That is why we felt we had to stop and get precisely to the bottom of the problems, go through all the investigations and discussion with the police where we thought there was fraud and abuse, and redesign the programme. So we were very actively involved in sharing information and perceptions from the early summer onwards, as evidence began to accumulate.

Mr Simmonds

  554. I would like to follow up from Mr Pollard's comments. The Minister, particularly, seems unhappy with some of the performance of Capita in various areas. I wonder whether you could give an assurance to the Committee that Capita will not be involved in any successor scheme because of their lack of performance during the previous scheme? If you are not prepared to give that assurance, why not?
  (John Healey) I am not able and I am not prepared to give that assurance. I will come back to that. I am unhappy not specifically with Capita but I am unhappy at the situation in which we find ourselves, with a scheme that was devised and designed to be so innovative in the early months and had demonstrated its value. I am deeply unhappy that it unravelled. I think responsibility for that rests across the piece rather than just with Capita as our Public Private Partnership provider. In terms of the successor scheme that we are committed to introducing, one option, clearly, is for us to tighten up the rules of the scheme, introduce the quality assurance that we now, I think, are agreed is required and to tighten up also the security in the operation systems, and, therefore, to continue with our partnership with Capita in order to deliver a secure and successful second scheme. That is not our only option, because as I mentioned earlier on we are looking at the role that the Learning and Skills Councils, certainly in England, could play in the successor scheme, but it is clearly an option and to rule it out at the moment would be a mistake and would make it much more difficult potentially to deliver a new scheme.

  555. It is something you are prepared to look at, because obviously Capita were one of the problem areas. I accept there was more than one problem area, but it is something you would look at.
  (John Healey) I am prepared to look at it. In part I am prepared to look at it because Capita are prepared to look at it so constructively as well. I have said earlier on that as these problems emerged over the summer, and facing the difficulties that we have had in winding down and ending the scheme, and then the investigations to get to the bottom of the problem, I cannot fault the degree to which Capita have worked with us closely. Clearly, we are also beginning discussions about whether we can get over the sort of problems we have had and, if so, that could be the basis for launching a successful successor scheme.

  Chairman: We do want to get on to that quite quickly.

Valerie Davey

  556. Very quickly, Capita informed us that they were not giving you education advice and that that whole area was not their remit. So they were suggesting that you needed another group to give you advice; the DFES needed advice on education monitoring provision. The whole of the Capita material that we have had seems to be very much this whole process. For example, the telephone calls they got on complaints—and you listed the numbers—seems to be a number-crunching exercise: how quickly could they respond to complaints, not anything about the nature of those complaints. It is this dysfunction between them progressing something which was your original specification, whereas, as the Minister indicated, the specification was the problem. So if the specification is the problem, how are you actually then going to input to that specification educational quality in terms of both the provider and what the individual learner receives?
  (Mr Lauener) A couple of thoughts on that at this stage. I think we need to be absolutely clear, we did not commission Capita to be experts on training quality, training provision—

  557. Despite all their experience in that area?
  (Mr Lauener) Their expertise is in providing systems to make things happen; to provide support systems. They are not policy analysts, policy designers, and I do not think they would claim to be.
  (John Healey) We felt we had that expertise.

  558. Exactly.
  (John Healey) Which indeed we do.
  (Mr Lauener) At that very broad level we are clear about what we asked Capita to do. The figures that you talked about are actually very important. I do not think it is right just to view this as a data-churning process. One of the things we wanted, very clearly, from Capita was a good customer service interface; we wanted people to be able to 'phone up and get an efficient service that they would recognise as a service. That was actually about changing the nature of the way people related with the learning system. So it was very important that when people 'phoned up they got a good service, and a lot of the figures you refer to are about monitoring the quality of that.

  559. Hold on, were the complaints trivial and of the nature of "The money has not come through", or whatever, or are they more serious about "The education I am getting does not lead anywhere. I have spent the last three months—"?
  (Mr Lauener) They covered both, and we did have a system for analysing the nature of the complaints coming back.


 
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