Select Committee on Public Accounts Twenty-First Report

Examination of Witnesses (Questions 80-99)



  80. The National Audit Office clearly say that. They are saying there is scope for £60 million worth of savings, so somebody has been getting more than they should have been.
  (Mr Gershon) Let me answer the original question that you posed.


  81. If you could just try and attempt to answer all the questions.
  (Mr Gershon) Yes, but can I go back to the first question?

  82. Yes, you can.
  (Mr Gershon) Firstly, we have put in place, as I said, an agreed methodology with departments and the NAO now that on an annual basis we are measuring value for money improvements out of government procurement expenditure. Secondly, we are putting in place a broader range of framework agreements. The update to the existing SCAT catalogue, which includes both IT based professional services and broader management consultancy, will be put in place by the end of March. We have said we will put in place a broader range of framework agreements covering legal services, human resources and accountancy services by September of next year. We have also, in conjunction with the NAO, co-sponsored a booklet for auditors to help them understand the role that they can play in getting greater focus within departments about getting better value for money for procurement expenditure, including professional services. I said that we are starting to put in place a broader range of controls within departments to make it harder to take single tender action, supported by more framework agreements to make it easier to undertake competitive procurements, particularly where demand for professional services can arise at very short notice. Those are some very specific measures that are being taken now.

Mr Steinberg

  83. You must be aware, presumably you did a little research before you came here and found out the attitude of this Committee towards consultancy fees and what has been said in the past?
  (Mr Gershon) Yes.

  84. I asked the National Audit Office, because they have much more research facilities than I have because there are so many more of them, to look me up a couple of examples over the last 18 months regarding consultancy fees that we could look at. They came up with two out of possibly dozens they could have done. This was the Committee of Public Accounts 19th report, the Contributions Agency, Newcastle Estate Development Project. The National Audit Office report found that the cost of advisors had increased during the project from an estimated £250,000 in the budget to an outturn cost of nearly £3 million. At that particular hearing I highlighted this and asked the reasons for the increase, why Masons had received such a huge increase in fees, fees which represented something like 93 per cent of the total cost of the external advisers and really we did not get a satisfactory response. Another example is when we look at the 15th report, the Office of Passenger Rail Franchising, the award of the first three passenger rail franchises. The consultancy fees were £19 million for legal and financial advice and we expressed our deep concern at that time that no budget had been set for external advisors. Surely that cannot be right. What are you going to do to put it right? What are you going to do to stop this happening again?
  (Mr Gershon) I am aware of the Newcastle report because clearly there was a Treasury minute response to that which placed a number of actions on the OGC to follow up and that has been done.

  85. Will you guarantee it will not happen again?
  (Mr Gershon) Let me try to explain some of the mechanisms that we have put in place. I cannot guarantee it, no, but I can tell you that there are mechanisms today that were not in place when the Newcastle project was in its pre-contract phase. Firstly, there is much clearer advice and guidance to departments about the selection and use of professional advisors, both in PFI, because Newcastle was a PFI project, and in other areas. Secondly, on major projects now, we have in place the gateway review process which provides independent reviews of projects at different points in their life cycle, particularly looking at what is going on in the pre-procurement phase. One of the things that those reviews look at is the extent to which departments are properly planning the use of external resources in the early, i.e. the pre-contract, stages of the projects. What I can say to you is if the Newcastle project was starting today it would definitely be subject to the gateway review process. I believe the review process would have flushed out some of the weaknesses that were identified in that particular project, as to whether guidance was being followed, whether there were budgets set and the sorts of controls that were in place. Those are some of the things that we look at now in gateway reviews.

  86. I could go on but there are a number of other issues that I wanted to discuss and perhaps we will leave that for the moment. Just as a little anecdote, I can remember being in a meeting with some civil servants not so long ago. I will not say which department it was or who it was because that would be unfair—in fact it would not be unfair, but never mind—and I said that Deloitte and Touche had recommended a course of action. He said to me, "They would, wouldn't they, because that is what the department wanted to hear". Do you think that is a normal sort of attitude, that when you employ consultants basically they are giving the advice they know the departments want to hear?
  (Mr Gershon) Do I think that is a normal attitude based on the discussions I have had with civil servants involved in this area? No, I do not think that is a normal attitude.

  87. You do not. I will tell you why I say that—because I find it very difficult to accept that we need Deloitte and Touche and PriceWaterhouse and all these people. In the report it says we hire 3,000 experts and specialists, all on presumably very high wages and yet we still spend £610 million on professional advice. What the hell are they being paid for in the first place? What do they do?
  (Mr Gershon) Are you talking about the external advisers?

  88. I am talking about the internal advisers. We employ 3,000 internal advisers, presumably all specialists all on very high wages but we cannot go to them; we go out to Deloitte and Touche and PriceWaterhouse. Why do we employ 3,000 specialists in the first place? What is the total salary of 3,000 experts for the year?
  (Mr Gershon) Because there is internal demand for those experts.

  89. We employ experts so why are they not used?
  (Mr Gershon) Because in a number of areas they do not necessarily have the relevant expertise or they are not necessarily available to meet the demands of departments.

  90. I would ask the question, if that is the case, why not? Presumably when you employ specialists and advisers you employ them to give advice on specific issues you know are going to crop up, so why do you need so much external advice?
  (Mr Gershon) The NAO Report identifies a number of reasons as to why organisations look for external advice. Some of it is because the expertise is not in-house. As we move more and more into areas like e-government, where, in some sense, government is looking to do some of the things that have already been done in a number of private sector organisations, the internal experts do not have the relevant expertise, they have not worked on that type of project, they can bring no practical experience to bear based on having done comparable projects in the private sector. Should we use a so-called internal expert who does not have the relevant practical expertise or should we use somebody who has got that expertise? In some areas departments need to avail themselves of people who may have relevant, practical expertise that is not available in-house.

  91. I wanted to cover what Mr Trickett was raising because I was also very worried about what I thought was the chummy relationship that civil servants seem to have and the power of patronage they have, but he covered that so I will move on. One of the things that did annoy me most intensely about this report was what appeared to be the lack of co-operation between departments and the National Audit Office, page 31, paragraph 2.17, figure 17. When departments were asked by the National Audit Office for information regarding the departments' expenditure on professional services, 50 per cent failed to give the information requested. And the 50 per cent who failed to give the information were the ones who spent the most money in the first place. Why was that? It seems to me click, click, click "We are not saying, guv.'"
  (Mr Gershon) I am trying to work out how you calculated that.

  92. I hoped my sums were correct when I did my little notes.
  (Mr Gershon) There was no response—

  93. And incomplete, so they did not give the information that was requested.
  (Mr Gershon) Sorry, it is for the reasons we have discussed already, that management information systems available in the departments did not enable them to answer the questions that the NAO had asked.

  94. Is that not handy? It is very handy, is it not? I just find it incredible.
  (Mr Gershon) I think the NAO, as the auditor of many of these departments, would have a view as to whether they were just using a handy excuse or whether their departmental systems inhibited them from providing the information.

  95. You have got a lot of work on your hands in the next year, have you not Mr Gershon?
  (Mr Gershon) Don't I know it!

  Chairman: Mr Alan Williams?

Mr Williams

  96. May I ask NAO whether they billed Mr Steinberg for all this consultancy work they have been doing on his behalf! It was money well spent anyway. We can understand that there are circumstances where it does not make sense to have skills in-house. There are ad hoc skills which you only need occasionally and therefore it is more cost-effective to buy outside as and when required. The Committee well understands that but there is a sneaking suspicion that has emerged at one hearing after another that, in a way, consultants are a sort of body armour for the civil servant. They may know what they want to do but in case it goes wrong they want to have cover to say "we went out and got consultants", even, as Mr Steinberg suggested, if they find "friendly" consultants. Is that a possibility do you think or is it purely political suspicion?
  (Mr Gershon) I would have to acknowledge that it is at least a theoretical possibility, Mr Williams.

  97. This Committee has been blamed for much of this risk aversion amongst civil servants and this is a way in which a civil servant can, as I say, secure protection. Let us go back to this 1994 Cabinet Office scrutiny. What was the level—does NAO know this—of consultancy expenditure at that time? They must have had a level in order to be able to recommend that £65 million could have been saved.
  (Mr Burr) My recollection was that it was £500 million at that time.

  98. Do you confirm that figure, Mr Gershon?
  (Mr Gershon) Yes, just over £500 million is the number referred to in the Report. They looked at the whole span of external support and they identified a number of categories, one of which was consultancy, others included things like staff substitution and research. They identified a total and then they focused in on this just over £500 million of consultancy spend.

  99. Then you told us that in between times there are no annual figures. That leaves us with a suspicion that the efficiency scrutiny was treated as a matter of symbolism by the Civil Service who paid lip service to it and carried on in their own old merry way, and took no notice of it at all.
  (Mr Gershon) I think what you can see, and there are a number of examples highlighted in the Report, is that a number of departments have taken quite comprehensive action to get a good handle on their expenditure in this area. The Report talks about, for example, the Department of Social Security, the DWP that now is. The Report also argues why the results were only partially implemented. There clearly are certain things that have happened. There was a control that was put in place after the review and, certainly in my experience, controls need to be refreshed and reinvigorated, which was the so-called £50,000 limit which I think was introduced by one Cabinet Minister in 1995 or 1996 and was then picked up by a number of his colleagues. That only addressed, however, management consultancy. It did not apply to other forms of professional services such as legal accountancy and expenditure on external human resources and so on and so forth.

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