Examination of Witnesses (Questions 140
WEDNESDAY 14 NOVEMBER 2001
KCB AND MR
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
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
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
(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
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.
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
(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
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.
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.
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