Examination of Witnesses (Questions 160-179)
SIR NICHOLAS MONTAGU KCB, MR JOHN YARD CBE, AND MS LIS ASTALL
MONDAY 3 DECEMBER 2001
160. I think it was clear to the rest of us outside.
(Sir Nicholas Montagu) I am sorry, Mr Gibb, again I have to come back, slightly boringly, this is the report to which, as Accounting Officer, I have signed up.
161. Sure, but you must admit by May 1997 it was clear there was going to be a change of Government?
(Sir Nicholas Montagu) As the Chairman said, I am not going to comment on that. What was clear in May 1997 was there was a general election in prospect. It was clear, also, that some of the party manifestos contained some undertakings. What was not clear at that point was to what extent the changes might be required to the NIRS 2 system. Again, I have to make the point that I took over the responsibility that George Bertram had at the time as Accounting Officer but I am very far from clear what the propriety would have been of George's undertaking work that could have been nugatory on the possibility of extra work being required in the event of a particular party winning the general election.
162. I would like to ask one other question of you and that is about the cumulative effect of policy changes. Again this was touched on briefly earlier. What systems have you in place to ensure that ministers, junior ministers, in different parts of the Treasury, junior ministers in different parts of the Department of Works and Pensions, working on various policy proposals which will have an implementation prospect, what systems have you in place or will you put in place to ensure when they are considering a policy proposal in isolation that within that policy document is an "if colleagues in another department do X, Y and Z this enhancement cost will be X plus £10 million, Y plus £10 million"?
(Sir Nicholas Montagu) Again, I come back, Mr Gibb, to the fact that we have robust and well established feasibility arrangements which allow us to analyse the options for change. Also to the pointlet us continue with the Department for Work and Pensions as an examplerecently I had a joint meeting of my board with Rachel Lomax and her board to go over the obvious issues which are of joint concern. This is supplemented by a more or less formal grouping under one of her deputies and one of mine. Also, by enormous amounts of day to day contacts. So, for example, in the case of new tax credits, they are ubiquitously involved and would be on the Project Board and all relevant groupings. We are pretty joined up with them.
163. When ministers receive policy documents there will be accumulative type costs attached to them not just isolated costs for one policy proposal?
(Sir Nicholas Montagu) I think it would depend very much but, yes, almost certainly. If our ministers asked us to look at an option which involved, let us say, changes to the Department for Work and Pension systems, we would take steps to try and find out from DWP colleagues what those systems of changes were, what they cost and what the lead time for implementing them would be. We do try to give ministers as complete advice, transcending departmental boundaries where appropriate, as we can.
164. May I say it is encouraging to see the Department and the company sitting side by side looking happy together because this was hardly a marriage made in heaven, was it?
(Sir Nicholas Montagu) Like many marriages, Mr Williams, it took time to settle down but now we are very happily partnered indeed.
165. You were a very, very tolerant groom, if I may say so.
(Sir Nicholas Montagu) I think I was the second husband actually, Mr Williams.
166. Yes, second husband, even more so. You chose to overlook 1,900 faults declared by your chosen partner from previous experience?
(Sir Nicholas Montagu) I think, Mr Williams, again, we are going over ground which you and I have had the pleasure of discussing on a previous report. What we are talking about here is the extension of the Accenture contract to meet new legislative needs. At the point where we decided to extend the contract, we were working well and constructively with Accenture and the system was delivering in excess of the contracted requirement.
167. You remember the 15 minute rule is a very good rule. I commend the way you manage to extend any simple answer.
(Sir Nicholas Montagu) It is a complex question, Mr Williams, as all yours are.
168. This was as clear a shotgun wedding as anyone was prepared to see. Even your mother-in-law, the National Audit Office, was less than fulsome.
(Sir Nicholas Montagu) My real mother-in-law will be very flattered by that comparison, Mr Williams.
169. Sir John can speak for the National Audit Office. I look at the heading of table 7 which you keep quoting. This does not sound to me to be glowing praise for a prospective partner. "Accenture's proposal offered better value for money than breaking the contract". That is the heading.
(Sir Nicholas Montagu) Yes, it is indeed.
170. Then look at the small print. Immediately underneath it says "Accenture's proposal compared closely with the benchmarks used by the Inland Revenueindustry rates and outsourcing rates". But when the £44 million cost of breaking the contract were taken into account then it became a much more acceptable proposal.
(Sir Nicholas Montagu) Equally the left hand side of that table, as I have already said, indicates that Accenture's proposal was the best without the break costs.
171. Yes, but you see it was the best for the wrong reasons. I am not blaming you, I think you have taken the right conclusions, it is just I do not want the wrong aura to pervade from this contract into the next contract because I think we should be clear why this partnership took place. It was, as has already been pointed out, because there was a £44 million cost of breaking the contract but then, as your colleague said in answer to Mr Steinberg, the competition lacked knowledge of the system. So it was not great praise of your chosen partner, it was that there was no one with knowledge of the existing system which was not very good anyhow.
(Sir Nicholas Montagu) On the contrary, by then the existing system was extremely good. It was stabilised, it was performing in excess of requirements, and again, Mr Williams, I emphasise this was a decision not taken in isolation by the Revenue but with the advice and support of independent outside consultants. It was, quite simply, as Sir John's Report acknowledges, the right decision to take. I refer you to paragraph 12 of the Executive Summary, "The results therefore supported the option to extend the contract with Accenture." Paragraph 18(d), "A contract extension offered better value for money to the Inland Revenue . . ." Our auditors have crawled over the decision.
172. Yes, that is once you take out the £44 million cost.
(Sir Nicholas Montagu) No, Mr Williams, Table 7 shows that without the 44 million it is still the best option.
173. No, it does not. What Table 7 actually says in the National Audit Office's conclusions, which you signed up, as you reminded us earlier, is that when the £44 million cost of breaking the contact is added it is then the opposition becomes much more expensive.
(Sir Nicholas Montagu) Indeed, much more expensive. What the left hand column shows is that it is more expensive but, if I may put it that way, less more expensive than when you take the 44 million out. That is hardly rocket science, Mr Williams.
174. Let us take the next point which shows there was virtually no choice. In answer to a question I think you said if you went into a competition it would take 18 months, in other words, there was no option on the time front either. There was no option on the cost front because of the contract which would need to be broken, there was no option on the time basis because it would take 18 months to have a competition, and there was no option because it did not matter how good the competitors might have been, as your colleagues said, they lacked knowledge of the system. This was why I say it was hardly a marriage blessed in heaven.
(Sir Nicholas Montagu) On the contrary, Mr Williams, it has been blessed in heaven, and since it was a marriage with a partner already performing successfully and, if I may say so, our combined marital performance since then has given me great cause for satisfaction too. Of course, there were other considerations which I have mentioned about the likely risk to the delivery of Government business. I have not pretended it was otherwise. What I am saying is that Sir John's Report shows that on all fronts it was the sensible decision to take, including on the pure financial one even without the break costs. That is what Table 7 shows.
175. Can I tell you what surprises me about this? I have said I accept it was the best choice in all the circumstances, but the thing which absolutely amazes me when I look at the contract is that you were not taken to the cleaners. One of the fundamental tenets we repeat to departments is, "Try not to alter projects part-way through because you are over a barrel" and you were over a barrel as well, I understand that, I am not complaining about that. The amazing thing is not that it has cost you as much as it has but it has not cost even more because you really did not have a choice.
(Sir Nicholas Montagu) We did have a choice
176. What choice?
(Sir Nicholas Montagu) As the Report shows, we had the choice to break the contract, to launch a competition and to go for another supplier.
177. But you said the competition would take too long.
(Sir Nicholas Montagu) Let me finish my reply, Mr Williams. The reason why we did not exercise that choice was because it would have made bad business and financial sense to do so. I am sorry you take such a cynical view of partnerships that you are surprised we were not taken to the cleaners. I would make two points. One, we have not been taken to the cleaners, we would not have signed a contract where we were. Two, I go back to the answer I gave to Mr Gardiner, that the success of partnerships consists in recognising the pressures and the constraints on both sides. On our side, that means whether we have Accenture or EDS or whatever, the need to make a reasonable commercial return, which is why in both contracts we have sharing arrangements for returns above that, and on theirs that we are looking for value for money and efficiency in achieving the desired outcomes.
178. But the partnership may be about to produce an offspring, might it not? In 2004 there is going to be a new contract, that new contract is a ten year contract with options for extension. That contract would be worth about £4 billion. When was it known this extension contract would be possibly coming along? Is that very recently?
(Sir Nicholas Montagu) We have always known about the competition in 2004. We have always envisaged a competition when the EDS contract comes to an end in 2004.
179. And the company were aware of this as well?
(Ms Astall) Yes.