Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140 - 160)



  140. May I say, Mr Tebbit, you very adroitly in your second sentence offloaded one set of responsibilities to Sir Robert, and now you have equally adroitly set off this responsibility to your colleague.
  (Mr Tebbit) But it is a specialist job.
  (Mr Porter) Yes, the reference group is regularly updated and currently it comprises a little over 900 companies with a capital employed across those companies of £219 billion.

  141. When you say "regularly", how regularly would that be?
  (Mr Porter) Every three years the Review Board for Government Contracts undertake a general review of the profit formula and at each of those general reviews they would determine whether the reference group that is currently available to them continues to be the right reference group or whether it should be changed.

  142. This was set up in 1998 so are you due for another one now?
  (Mr Porter) The last report, as you say, was in 1998. There should have been a general review but that has been suspended for the time being because of the more fundamental review of the Government profit formula which is currently in hand and which the box you refer to touches on.

  143. I do not know if you have noticed but there have been some problems with profit in industry; there have been lots of complaints about it. Are you saying that during the time in which profitability for industry has allegedly gone down, because of the value of sterling you have excluded those changes, you are ignoring the fact that this has happened over several years and you are going to carry on with 1998 figures?
  (Mr Porter) The 1998 figures are those that are still in operation.

  144. That is very reassuring, is it not?
  (Mr Porter) The judgement is that they continue to offer a fair rate of return to contractors and provide value for money for the Ministry.

  145. That really means that that footnote and that box are relatively meaningless in terms of contemporary validity, which does not surprise me because we are told by our briefing note by the NAO that we, that is the NAO, found that the Department's guidance for non-competitive procurement is dispersed amongst various publications and is not always up to date. It is not very encouraging, is it?
  (Sir Robert Walmsley) I would like to respond to that, Mr Williams, because the report also says that 90 per cent of staff found the guidance either effective or highly effective. The second point I would make is that our guidance, as Mr Tebbit made quite clear, is extremely voluminous. There are 30,000 pages in the acquisition management system. We have a very dispersed Ministry of Defence. We are talking about grades of people from very new junior entrants right up to directors of contracts, people nearly as old as me, and they all need guidance but it has probably all got to be differently phrased. If you are a new entrant aged 18 trying to place a contract you do not want to be faced with a huge great MOD book. We have to do better but the answer is, it is liked by the users.

  146. Yes, but now you worry me even more because what the NAO said was that the Department's guidance is dispersed amongst various publications. I thought it might be a couple of books but now we are told that is 30,000 pages. It is going to be a bit of a job to find anything, is it not?
  (Sir Robert Walmsley) It is available electronically. The 30,000 pages sit inside computer memories and you can navigate your way through them but you have still got to have a knowledge of where to find them.

  147. Before we come to your computers, can we switch back a page to page 14 because this is on the 75 per cent proportion that is competitive. If you look at that diagram, number 2, "The extent of non-competitive procurement", we are told as a heading that the Department has broadly met its performance measure, which is 75 per cent competitive, for the last five years. If you look at them, the first two years, yes, that is about right give or take a fraction, 1996 and 1997, but then it begins to fall away and in 1998/99 it is under the 75 per cent, it is under the 75 per cent in 1999, and by 2000 it was down to 66 per cent. It is getting lower successively. It is getting worse. If we then jump to page 31, bottom right, in paragraph 3.11 the NAO says that in their view the 75per cent criterion "is of less utility now". The last sentence says, "The Department did review the performance measure in 2000 but decided that it should remain in place for the time being given its utility as a yardstick". What is the good of a yardstick that is getting a couple of inches shorter each year? It may have been good up to several years ago but the last three years in that box 2 it clearly shows that it is becoming increasing irrelevant.
  (Mr Tebbit) First, 2000 and 2001 showed an increase back towards the 75 per cent figure.

  148. No, it is 66 per cent. That is not very good, is it?
  (Mr Tebbit) As we have said before, this is not a key performance target. This is a useful piece of management information for us, to see how the pattern of our procurement is going. It is a responsible piece of information to gather but it does not drive our work.

  149. I have listened to your explanation, but you started at 75 per cent and you have successively gone down to 66 per cent. It does seem to me that the 75 per cent has lost its relevance and it seems so to the NAO as well. Maybe you disagree with them.
  (Mr Tebbit) It does not drive the work. We will continue to collect the information but it does not drive the work. I am more interested in value for money than in the precise proportions of competition.

  150. I want to come back to Sir Robert's point about their databases. If you look again on page 31, higher up the same column, 3.9, "The Department holds a range of data on its non-competitive procurement in two separate databases". It points out that "there were inconsistencies between the two databases, that this data was not always incorporated in a timely manner and was not always brought together in a single point of reference". That suggests that what data you have is not being used effectively anyhow.
  (Mr Tebbit) It goes on to say that we are bringing it together in a new application, so we are taking your point. If I may say so, you are selecting bits of the report that are not so positive, and I am trying to explain to you that there are some positive aspects to the report.

  151. With respect, we know it is going right and this is the problem. Our job is to find out where things are not going right. That is our job and it is not necessarily done in a harmful way but we have to find out what needs to be put right. As you said, you are about to put that right.
  (Mr Tebbit) Quite.

  152. And that brings us to the bottom part of that paragraph. You have a new information technology application, ASPECT, which is to be introduced in late 2001. It is now late 2001, is it?
  (Sir Robert Walmsley) It is being introduced. We started rolling it out in the spring of this year. We will finish rolling it out I think in February of next year. I may be a month or two wrong but that is as near right as makes no difference.

  153. Was it on schedule?
  (Sir Robert Walmsley) It is on schedule, Mr Williams. Everything in the end is on schedule.

  154. What about on cost?
  (Sir Robert Walmsley) Yes, it is.

  155. And from whom did you buy this system?
  (Sir Robert Walmsley) We have a prime contractor called Unisys who were selected by competition and they have assembled a number of components so they do not devise everything themselves. I must just come back to this 75 per cent because you know I am itching to make the point that an individual year's statistics can be hugely distorted by an individual procurement. Right at the back end of 2000/2001 we had the non-competitive contract for the Type 45 Destroyer. This year we have had the competitive award of the contract for the engineering and manufacturing development of the Joint Strike Fighter and we will do very well in those statistics. We do try to preserve a three-year rolling average.

  Mr Williams: This shows the point of asking what seem to be harmful questions. We have got a sensible answer. If that had not been in the report I would not have asked the question. Having asked the question, far from doing you harm, I have given you a chance to explain what otherwise looked like being a deficiency in your system.

Mr Gibb

  156. I think it is quite a good report overall. All these techniques are very impressive, NAPNOC and so on. But you have told my colleague that you overrule all those techniques if there are long term competitive issues globally and within the United Kingdom. Also, you will overrule those techniques if there are strategic reason for placing a contract in the UK. Am I also right in thinking that you overrule those techniques if there are job implications for placing a contract in a certain region?
  (Mr Tebbit) I do not think I ever used the phrase "overruling the techniques".

  157. In reality they must be overruled.
  (Mr Tebbit) What I was trying to say was that in looking at how best to achieve value for money sometimes we need to look long term, not just short term, and that is also true in terms of preserving competition. Certainly though employment considerations do play a part. They are taken into account when we make judgements about which way to go but they are not an overriding consideration. They are part of the process that we go through in judging competitions and contracts.

  158. Finally, in paragraph 2.14 it talks about the engine of the Eurofighter and it says that there was no form of `Should Cost' analysis practicable on the contract for the production investment for the Eurofighter engine because of the novelty of the technology involved which involved the establishment of a state-of-the-art jet engine manufacturing facility. If there had been comparative `Should Cost' things available and they had been cheaper would you have been able to go elsewhere on such a contract, or would again the politics have overruled that?
  (Sir Robert Walmsley) Most of Eurofighter's main articles are produced non-competitively, that is to say, the air frame and the engine. It would simply not be sensible for the United Kingdom to contemplate going beyond Rolls Royce for the manufacture of advanced combat aircraft engines. They are the only contractor.

Mr Jenkins

  159. I have referred to post-cost in pricing. I did not get what I really felt was a satisfactory answer, so I would like to make it clearer to you. If you have a look at page 31, for the four-year period there the estimate and price are at variance.
  (Mr Tebbit) Yes.

  160. How many times did the outrun vary from the initial cost, that is, that you were overcharged by a partnering agreement? Could you possibly give us the figures at some time, so that you can say what your partners were looking like and then what other sources are looking like to see if there is a much closer gap with this partnering agreement? Could you give us some measure about how effective it is?
  (Mr Tebbit) We will be happy to do so.[4]

  Chairman: Thank you very much. That concludes the public session. There are two or three questions we have to ask in closed session because they are commercial-in-confidence.

4   Note by witness: All of the 11 non-competitive contracts refered to at paragraph 1.18 of the C&AG report were placed in the last 3 years, and none have completed. There has therefore been no post-costing and comparisons cannot yet be made. Back

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