Select Committee on Public Accounts Twenty-First Report

Examination of Witnesses (Questions 20-39)



  20. You said "that we should be aiming for".
  (Mr Gershon) Yes.

  21. You mean it is a target that we have?
  (Mr Gershon) It is a target.

  22. Yes.
  (Mr Gershon) By our acceptance of the report we have accepted that the target is a realistic target that we should all aspire to achieve. The way in which it will be monitored is within the overall OGC top level value for money improvement target, which it has to achieve in the first three years of its existence. During the course of the last fiscal year we agreed with departments and the NAO a methodology which departments would use to report to us the savings that were achieved under the various initiatives that the OGC is sponsoring. So we will use this methodology as the way of capturing overall value for money improvement which includes the contribution that will come from better procurement of professional services.

  23. If I can move on to another area the Chairman touched on and that is when he referred to the 32 per cent of contracts for which there was a single tender. Have you now got in place new instructions on tendering for low value contracts?
  (Mr Gershon) No. We are in discussion with the departments at the moment about what proposed new controls ought to be within departments. What we have done is build up a picture of existing controls and we have now come back with some proposals in this area. There is general acceptance amongst my Supervisory Board colleagues that we need to make it harder within departments to go to single tender and easier for departments to go competitive. So we are closing off the gate on the one hand about single tender action, which will look to better control endorsed by the Permanent Secretaries, and then putting in place a broader range of frameworks as an example to make it easier to run competitions.

  24. Can you give the Committee a timetable by which you hope that improved process will be delivered?
  (Mr Gershon) The new controls, I hope we will have agreed with departments by the end of this calendar year. The timetable for the range of frameworks, we are looking to refresh the existing management consultancy framework arrangements by next March and I would expect to see the framework agreements in areas such as legal services, human resources and accountancy then being put in place during the first half of the 2002-03 fiscal year. Shall I say by next September.

  25. Looking at the question of the lack of information that departments have held about the contracts which they have, is there now someone responsible within each department for the gathering of that information so we do not have this situation where in 43 per cent of the contracts, or of the value of the contracts we just do not know where the money has gone?
  (Mr Gershon) On the exercise I referred to, that data was provided to us through the principal finance officer network because their departmental finance directors own the accounts payable files.

  26. Yes.
  (Mr Gershon) As departments come up to replace their existing financial and management information systems then the departmental heads of procurement are one of the key stakeholders in those projects and we look to them to ensure the replacement systems will be providing the relevant information. Most of the replacement systems are using industry standard packages which will tend to provide this information anyway as a by-product if the systems are set up correctly in the first place.

  27. So are you saying that the reason why that information has not been—
  (Mr Gershon) Many of the current systems were simply not written in such a way and designed to provide this sort of management information, and that is part of how we are trying to do the best we can with the data that we can get as by-products from today's systems.

  28. Can I just bring you to the focus of the question, though, and that is is there a specific person within each department who you would be able to hold accountable if there was a failure of that information?
  (Mr Gershon) I do not think technically I can hold anyone in departments accountable in the sense it would be recognised by the House. We would look primarily to working with heads of procurement and principal finance officers to ensure that replacement systems would provide this sort of information.

  29. And if there were a failure of that system to provide the information in some way, you are saying that it is those two positions, those two post-holders who would be responsible?
  (Mr Gershon) Yes I would expect to have access to why they had not addressed this issue.

  Mr Gardiner: Thank you very much.

  Chairman: Thank you, Mr Gardiner. Mr John Trickett?

Mr Trickett

  30. I want to ask you to return to some points that have already been raised and perhaps ask some cultural questions at the end if there is time. According to the sample of contracts which was looked at in 1999-2000 50 per cent of the contracts had not been tendered in terms of multiple tenders. So it was not 32 per cent, it was 50 per cent. I am wondering how you satisfy yourself, first in terms of probity, in relation to those contracts because it seems to me that it has raised all kinds of questions, one of which is probity. What is to stop collusion between the civil servant doing the purchasing and the supplier if there is only a single tender or not even a tendering process?
  (Mr Gershon) As I have already said, our focus has been on trying to address how we reduce the incidence of single tender in the future, and that arises, as I said, through better control. We need to ensure that departments do take seriously the involvement of professional procurement in the sense that the user of the service has someone during the procurement who is professionally qualified to help make sure that an objective decision is made based on clear evaluation criteria to select the offering that provides the best value for money for the taxpayer.

  31. I am asking you about probity. If I can try to use different language—what is to stop a corrupt relationship? Is that not something which enters your minds in your particular function, the possibility that there is collusion between the person who holds the budget in the Civil Service who is purchasing the services and the supplier of services? It strikes me that if there are multiple tenderers and one has objective criteria to choose between the tenderers, such as price for example, the possibility of collusion is substantially reduced. Some of these appear to be by simple telephone calls—that is how one reads the paragraph here—to the supplier "please will you supply the following services". That raises issues of probity in my mind immediately and it is 50 per cent, which is £300 million worth of contracts which are going out without multiple tenders. Does not the issue of probity raise itself in your mind and what thoughts have you had on that?
  (Mr Gershon) I am clear that the public procurement process operated by government has the highest possible level of probity. The way we check is to ensure in future as much as possible is done through competitive procurement using clearly defined, publicised, objective evaluation criteria and the involvement not only of the user in that procurement process but professional, qualified procurement staff as well so that the users' interests and the interests of the procurement community are brought together, and there is not just one person involved in the process. I think that helps create an environment in which there is more likely to be a very high level of probity than where you get informal single tender action.

  32. That is a prescription of where we ought to be and perhaps where we are rapidly getting to, but I am interested in the question of what guarantees so far have we had in relation to the probity of this £300 million worth of work.
  (Mr Gershon) I cannot give you any guarantees about what has happened in the number of single tender actions that were identified in the Report in respect of the past.

  33. There will be a theme of probity running through some of the other questions I want to put to you. I want to refer now to the table which has been provided to us of suppliers where we find that 25 suppliers provide 37 per cent of all these external services. In fact, if you take the top four, remarkably, it is almost 25 per cent of the total purchases. £132 million was provided by four suppliers, each of which are overlapping in the kind of business which they do, frankly. I want to ask you about oligopoly and the power of suppliers to determine prices and I will come to that in a second or two. Before I do that, am I right in assuming that maybe 50 per cent of the contracts that have gone to this top four were done on single tender procedures or not even single tender procedures? Would you imagine that the same types of proportion will apply approximately to those tenders?
  (Mr Gershon) Mr Barrett and I have had discussions with two of the top four.
  (Mr Barrett) The top three.
  (Mr Gershon) And they have told us that the bulk of the business they have done was through competitive tendering actions, it was not done through single tenders.

  34. None of it?
  (Mr Gershon) I did not say none of it; the great majority of this was done through competitive procurement.

  35. That is what they have told you rather than you being able to determine it. That is a question of the suppliers rather than the purchasers, presumably?
  (Mr Gershon) Yes, it covers a large number of contracts. But those are reputable companies and they would not have deliberately misled me because if it subsequently transpires that we were misled clearly the consequences for them are quite serious.

  36. But it does tell us something about the management information systems.
  (Mr Gershon) Yes.

  37. I was not suggesting for a moment that they were trying to mislead you. I was wondering how you obtain that knowledge. Nevertheless, some of the contracts, some of the £132 million going to those four companies may well not have been done through the process of competitive tendering. Do you feel, in your experience, that a group of suppliers, however reputable, when they discovered they are providing a quarter of all services purchased by the Government, would think that this was quite a small market-place, and do you think at all that the Government is in the position of a purchaser of services which is, to some extent, at the mercy of a handful of companies and should anything be done to address that? Do you feel it is something we should be thinking about?
  (Mr Gershon) Firstly, I would say that I am not surprised that we see this sort of pattern amongst the top companies because if you look at external surveys that have been done, there has been one published in Accountancy Age and there are surveys done by one of the management consultancy associations, then you would see that their overall position in the UK market-place in terms of the revenues and the number of professionals they have on the ground is not dissimilar to this pattern. It slightly depends on the extent to which some are focusing more effort on the public sector than others but this is not a surprise to me. I think this covers a range of different professional services ranging from management consultancy, for example, accountancy type services. To some extent those are different markets which makes it harder, I think, if there is to be scope for the sort of behaviour that you are suggesting. Secondly, on the big assignments, some of the high profile assignments, I am satisfied that of those that fall above the EU threshold there is pretty well 100 per cent compliance with going out to competitive tender.

  38. We are now complying or we ought to be complying?
  (Mr Gershon) No, I am satisfied that there is a high level of compliance with where the EU thresholds require that there is competition.

  39. Nonetheless, there are three companies—I am not including WS Atkins, they are consulting engineers, the others are accountancy, personnel management, consultant type—it does not take a genius to discover that a quarter of all contracts go to four companies, all swimming in the same pond, they see the advertisements in the European journals and come to agreed prices. I am not suggesting that is happening but I put to you I wonder whether you think we are vulnerable as a government, if you like, to the possibility that there might be some conversations on the golf course?
  (Mr Gershon) Conversations on the golf course? The industry produces surveys on things like rates.

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