Examination of Witnesses (Questions 100
WEDNESDAY 14 NOVEMBER 2001
KCB AND MR
100. You could not go to Victoria Street, the
Army and Navy, or somewhere like that?
(Mr Tebbit) Not when you need 20,000 in one go in
101. You might as well do because they were
no good anyway, were they, if I remember rightly?
(Mr Tebbit) You are quite right. I should not have
offered you a free shot at me.
102. Get shorter soldiers, that is the best
thing. Make sure soldiers are only 4'2".
(Mr Tebbit) I knew when I mentioned that my generosity
would not be returned.
103. How many contracts would you think it is
the case where there is, say, only one contractor?
(Mr Tebbit) You mean available in the market?
104. Yes. I know it is difficult. The point
I am getting at is that
(Mr Tebbit) For aircraft?
105. For anything.
(Sir Robert Walmsley) Twenty five per cent.
(Mr Tebbit) In some cases we chose to rather than
were absolutely obliged to.
(Sir Robert Walmsley) That will be about right. If
it is 25 per cent by value it will be about 25 per cent.
106. In paragraph 1.9 it tells us that NAPNOC
only applies to contracts worth more than a million pounds and
it occurred to me, as I think it occurred to Mr Jenkins, that
there must be thousands of contracts which are less than a million
pounds. I had to go out of the room just for a minute when the
total was given, but I think as I went out I heard somebody say
£861 million worth. Is that right?
(Sir Robert Walmsley) That is all our contracts, competitive
and non-competitive, valued between £250,000 and £2.5
107. Then I heard Mr Porter say that that is
just a minute part of the defence budget. Somebody said that.
It is a very small part of the defence budget.
(Mr Porter) I suggested that in value terms the proportion
was relatively low.
(Sir Robert Walmsley) It is four per cent.
108. Whether it is four per cent or not it is
still £861 million, which is a considerable amount of money.
Are you saying that there is no system to check on that one million
pounds worth of small contracts? How do you check that, whether
it is competitive or not?
(Mr Tebbit) There are checking systems of course throughout
the organisation. There is a distinction between whether something
is mandatory and whether it is recommended best practice. Perhaps
Stan Porter might say something about the way in which he takes
on his contract staff. There are 2,000 purchasing staff doing
this. Some of them are at relatively junior levels and we do need
a thorough system to ensure that proper procedures are applied.
It is one of the reasons why we have got so much guidance in the
Department, much more than I would like to see, because we have
to cater for a whole range of different types of people doing
very different sorts of purchases.
109. Would you also tell me why the million
pounds was plucked out of the air? Why was it not one and a half
million or £500,000?
(Mr Porter) When we started the NAPNOC procedure,
in order to ensure that it was introduced in the right way and
staff concentrated on the techniques, we set a threshold of £10
million but as soon as the concept became properly embedded within
the organisation after about only 12 to 18 months we reduced the
threshold to one million pounds. That is not to say that for all
of the very large number of contracts that are placed without
competition below that threshold we do not price at the outset.
Indeed we do and the vast majority of those contracts are also
priced at the outset. It is really, as I sought to explain to
Mr Jenkins, the bureaucracy that is involved and for the lower
value contracts we seek to implement a more streamlined process.
110. You assure this Committee that the contracts
for a million pounds and less will get us equal value for money
as if they were above a million pounds?
(Mr Porter) Oh indeed, and in answering your supplementary
on how do we ensure that that is achieved, we achieve it through
the process of delegation. I look to line managers to satisfy
themselves that their staff are performing their duties in a proper
111. I was also intrigued when I read the report
that the system has created a competitive environment similar
to NAPNOC and I think it said with the competitive pressures of
the market place. That intrigued me because I cannot understand
how you can get such an atmosphere when you are not going to tender.
(Mr Tebbit) I think that is a reference partly to
the `Should Cost' data which the pricing teams use. These are
people who have tremendous expertise in individual sectors of
the market about the cost structure of individual companies.
112. Surely you cannot beat a system where you
put out a specification and you ask half a dozen people to put
in a tender? I would have thought that was the pressures of the
market place. They know when you come to them that they are going
to get the contract at the end of the day anyway, do they not?
Only two did not.
(Mr Tebbit) As has been pointed out before, this is
an effort to give the taxpayer the best possible guarantee that
we are creating competitive pressures and driving down costs.
I do not say it is absolutely perfect because there is no absolute
measure but all the evidence and all the information I get suggests
that our people do achieve driving down prices and better quality
results. Companies complain about the pressure they are put under
by these teams and we would not keep them in being if we did not
feel that they were giving us a good return on investment. I cannot
give you a precise figure of how much I think they save us through
this technique. Robert Walmsley said he thought about ten per
cent of what we would otherwise be paying. That is a perfectly
good benchmark figure. That would be several hundred million pounds
113. According to my calculations that would
be, over the 250 contracts, £2.5 billion.
(Mr Tebbit) I do not think it would be quite that
big because I am not sure we have quite that size of equipment
procurement. Over several years it would be, yes. Each year we
spend £6 billions on defence equipment. It certainly is,
as far as I am concerned, a good investment to have. I would put
it the other way round. I would not want to disband those teams
and simply accept whatever price the company offers me.
114. What was also in the report was that all
contracts worth more than £250,000 should be on the equality
information pricing statement made between the parties and yet
we read in the report that in 31 per cent of the contracts surveyed
no such statement had been signed despite the fact that it was
the policy to do so and it gives some of the examples where this
happened. I am not saying that those projects lost money and I
am sure you will probably say that they did not lose money, but
why did you break that policy?
(Mr Tebbit) We have been round this once before. I
am happy to go round it again and get somebody else to do it if
(Mr Porter) As you say, the policy is that above the
value threshold you mentioned we should have a formal equality
of information statement signed. The report gives some illustrations
of those situations where we have not had an equality of information
statement signed as to the ways in which we sought to assure ourselves
that there was none the less some equality of information at the
time the price was agreed and the files will record these reasons
which is why the NAO were able to identify them in their study
report. In one sense there was a capital "S" statement
signed in 69 per cent of the cases. In most of the other cases,
as illustrated in figure 5, there would have been some statement
with a small "s" of the reasons why we were satisfied
at the time we placed the contract that we had had the information
that we judged to be necessary on which to base the price.
115. But if there is no statement then you have
to pay the contractor.
(Sir Robert Walmsley) We have got to get our act together
on that. I am going to be quite unequivocal about that. This report
told me that what was our policy was not being enacted and we
now do that, full stop.
116. It is so refreshing, Sir Robert, to have
somebody sitting there who admits that they actually made a mistake.
It is very rare. Civil servants very rarely admit mistakes.
(Mr Tebbit) The procedures were not being fully observed
as they should be.
117. There was something else that worried me.
When I read the report I got the impression that contracts between
£250,000 and a million pounds, where there was no statement
and no NAPNOC, were not really being scrutinised. You gave me
the impression before that the smaller the contract, particularly
that small, you are not really interested in it. Have I got the
(Mr Tebbit) That is certainly not my impression as
the accounting officer and that is not the impression I get when
I send my audit teams into the organisation. It is a question
of how elaborate the process needs to be in relation to small
contracts. It is a sort of de minimis issue, not a lack
of control issue.
(Mr Porter) I could certainly say that the discipline
that is brought to bear on an individual as he hovers with his
pen above a contract to sign is really quite great. I speak also
from personal experience of a few years ago, that one will want
to ensure that all of the terms of the contract and the price
are right and represent the best value for money before one actually
puts the pen on to the paper to sign the contract off. As I have
sought to explain in general terms, I expect the line managers
to be observing the way in which their staff perform.
118. Can we turn to page 30, paragraph 3.5?
In this it says that contracts are sometimes held up because the
negotiations are prolonged. This is going to be inevitable because
there is no tender procedure. Therefore you are going to have
a situation where time limits cannot be put on because at the
end of the day you have got to negotiate, negotiate, negotiate,
and does this not automatically mean that defence projects are
going to be held up? There have been reports over the years on
major projects where, to be quite honest, there are long delays
in defence procurement. Is this not another step towards prolonging
(Mr Tebbit) There are delays for good reasons and
delays for bad reasons. I regard the delays here as essentially
being for good reasons. We have pressure from industry who say
that we must come to terms quickly and accept their price. I am
glad my staff refuse to be put under that pressure and say, "Not
until we are satisfied that the price is right and we have an
acceptable contract". I do not think there is anything in
this particular neck of the woods that led to a delay that is
serious in terms of introducing new equipment into service.
119. Sir Robert inferred that we will not settle
just because we need the product. If that is the case it may well
be that you negotiate and negotiate. For example, on the four
projects, the Astute programme is nine months late, the Landing
Platform Dock (Replacement) is prolonged, the AS90 spares contract
is six months late, and the Sting Ray was 12 months late. You
are saying that it does not have a great effect on the defence
capability but at the end of the day it has to have some sort
(Mr Tebbit) I do not think it does have a great effect.
As I say, I would not apologise for all the delays that are caused.
I would agree with you that we should not have delays simply because
we are not sufficiently efficient as a customer to procure the
thing quickly, and to that extent I think we do need to look at
our procedures and are doing so to make sure we are not unnecessarily
cumbersome and slow in coming to terms. I agree with you to that