Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 1 - 19)




  1. Good afternoon and welcome to the Committee of Public Accounts. This afternoon we are looking at the PFI deal to provide a new radio communications system for the police. We are very happy to welcome Mr John Gieve, Permanent Secretary of the Home Office. Welcome. Would you like to introduce the top table for the members of the Committee?

  (Mr Gieve) Phillip Webb is Chief Executive and Accounting Officer for PITO. Jeff Parris is Vice President of Airwave mmO2 Ltd. Vaughan Asque is a member of the Science and Technology Unit in the Home Office.

  2. Why do you consider the Airwave deal a better outcome than a series of local procurements?
  (Mr Gieve) For a number of reasons. Firstly, it allows better co-ordination between police forces and that is a key gain from having a single system which straddles the whole country. Secondly, it allows what is called roaming, that is to say police from one area to come to the help of another and then use their own equipment. Thirdly, it enables us to concentrate our expertise, especially in new technology as complicated as Airwave's, also it allows some economies of scale in the resource put into managing the system and there may be economies of scale in the procurement.

  3. Do you want to comment on the disappointing outcome of this? We only have the police on board, not the Ambulance or Fire Services. How would you reply to somebody who said to you that you locked yourself into this contract early on, you were determined to press ahead with it with only the police, you only had a single supply, in fact you did not get as good a deal as you might have done? If you had looked at a series of local deals, you could still have ensured interoperability between the various police forces which I am sure you would agree is the important aspect. You have actually got quite a bad deal at the end of this with a lot of public money thrown at it. I just throw that general question in as a starter.
  (Mr Gieve) There were two questions really. One was: why did we not keep the Fire Service and Ambulance Service on board and have an even bigger national procurement? The other was: why did we not go for a series of local procurements? On the first, we did intend originally for this to be a fire and police system. The Ambulance Service was not engaged and in 1996 the Fire Service decided that the requirements of the police for their system were more complex than the requirements of the Fire Service, so they disengaged from the procurement, although they have stayed on the potential sharers' register. That was what happened with the Fire Service.

  4. Why was the Ambulance Service not included in the scope of the project?
  (Mr Gieve) We talked to the Ambulance Service at the time, in the early 1990s, but at that stage they had no requirement for a new radio system. There is now, as you know, and they are now planning to have a national procurement which will have interoperability requirements in it.

  5. So they might come in on this system.
  (Mr Gieve) They might.

  6. That will increase the already substantial profits for the company once they do.
  (Mr Gieve) Not necessarily. They have not negotiated a price. The Fire Service, or a substantial part of it, may also join the system, if it works. If you look back to the early or mid 1990s, there was no proof that it would work and the Fire Service, quite properly, took a view at that stage, that they were not looking for quite the functionality that the police were and they disengaged. From a government point of view, the fact that you have three or four people taking an independent view is not necessarily a bad thing. Yes, in principle, after the event, if it all works very, very well, you could say we should all have gone in at the beginning and we would have gained even better economies of scale. However, coming to your second question, there is a risk in putting all your eggs into one basket well in advance. Coming on to that: why did we not let the police pursue over 50—including Scotland—separate procurements? Because the police agreed with us that there were great advantages from having a single comparable system across the country. You say we have thrown a lot of money at it. Yes, it is a very expensive project but we think it is still a project which is going to produce and is beginning to produce great benefits for the Police Service.

  7. May I ask Mr Webb about this 17% return which was calculated as being what would be the right sort of return? How was this figure arrived at? Why was it deemed to be reasonable?
  (Mr Webb) It was arrived at by O2. We took advice from both our technical and our financial advisers in reviewing that. Considering the level of risk we were transferring to O2 and the fact that there was no precedent for such a large system in previous procurements, it was new technology, there were several stakeholders and in fact there were issues relating to site acquisition, we considered the 17% return was fair. This was endorsed at the time by both ourselves and the Home Office. We felt we had actually taken independent advice and the return was fair.[1]

  8. What worries me is that a reliable model could not be constructed without O2 providing detailed information about the quantities of components and labour and the timing of when they would be required. So you arrive at this figure, but you only have one company now bidding for this because you are locked into this project. You arrive at this figure of 17%, though it is not entirely clear how you achieve it, but you only achieve it with the help of the only company bidding for the contract. That seems a strange way of going about things to me.
  (Mr Webb) Before that, through the two models we applied to look at value for money, we examined very carefully exactly how much the cost would be and in fact as a result of that exercise we have reduced their costs so the return was on the final cost agreed.

  9. May I ask you about this public sector comparator? Firstly you decide not to use a comparator, then very late in the day you decide to use a comparator. There is absolutely no question of a public sector body being able to bid for this. Why did you use a comparator? Was it just to please this Committee?
  (Mr Webb) We actually chose initially to use the `should-cost' model. We felt that the `should-cost' model was far more robust. In the report we received support for that from the NAO in the sense they felt that was a right approach. The fact we actually used the public sector comparator towards the end of the project was because we felt it did meet the public sector comparator and so we undertook that at the end.[2]

  10. How did that help your value for money assessment?
  (Mr Webb) Let us be perfectly honest. If it had come out significantly less, we would have been very concerned about the figures we had come up with. In fact, having gone through that and having had it rigorously reviewed by our financial advisers and our technical advisers, it came out considerably more expensive.

  11. It seems that existing police radios are not up to the job. Why?
  (Mr Gieve) In what respect or why not?

  12. In reading the report, it does seem that you have been responsible for this for 50 years—admittedly not the same radios, although sometimes the police may be forgiven for thinking so.
  (Mr Gieve) And not the same Permanent Secretary either.

  13. Certainly not you personally. You think that the existing police radios were perfectly good for the job, do you?
  (Mr Gieve) No, we do not, which is why we are helping to procure a better one. What is wrong with the existing police radios varies across the country. Some have more modern ones than others but quite a lot of forces have very old systems which are subject to interference, which are running down, which are difficult to maintain, which can be listened to by hackers and so on. That is the fundamental reason why we have been supporting this project.

  14. You took a long time to get something moving though, did you not?
  (Mr Gieve) Yes. The context of this is that the police are not a state run service. This is not like buying radios for the Prison Service. There are independent police authorities and chief constables and after the decision was taken in 1993, after the review which said that we should go for national procurement, we had to spend some time in getting our constituency together on a co-operative basis. Indeed we still have to. In terms of timing, this is still cutting edge technology. It is not that we are buying yesterday's technology five years on. Airwave is still at the cutting edge.

  15. That leads me straight into the next question to Mr Parris. With problems being encountered during the pilot, how confident are you that Airwave will work?
  (Mr Parris) Airwave does work. Airwave is operating excellently in five of the police forces where it is currently rolled out. I am absolutely confident that Airwave will and is working. There are some issues for the Greater Manchester police, which we may come onto later, which we are resolving with GMP and the other parties operating there. Unequivocally I can say that Airwave is working.

  16. You say that, but the pilot of Airwave in Lancashire has encountered a number of problems that have not yet been fully resolved. That is mentioned in paragraphs 3.8 to 3.14. These problems include lower than contracted levels of coverage and a dropping of calls off the network. I understand that dropping of calls means if you are a police officer in a serious situation that suddenly your set can go dead, which might be rather alarming.
  (Mr Parris) The whole purpose of the pilot was to examine in great detail and very publicly all the issues associated with implementing Airwave so those lessons could be learned from as we went forward with the rest of the police forces. The issues you list were encountered and I think have all now been resolved. I have no embarrassment about the pilot throwing out lessons to be learned and opportunities; it was designed by the procuring parties to do just that.

  17. You are working on how to identify benefits from Airwave. How will you isolate the benefits of Airwave from other improvements in police IT systems?
  (Mr Webb) It is a very difficult task. The first thing we are endeavouring to do is to establish a rational benchmark in terms of each of the forces where we are putting them in. From that we are putting in place measures to determine exactly what benefits are being achieved. By virtue of the fact that we are putting in infrastructure here, it will have an impact on the processes and procedures the police use, in the sense that it will open up new opportunities. We are monitoring very carefully to determine what could and could not have been done prior to Airwave being introduced.

Mr Osborne

  18. May I return to the cost of the Airwave project? It says in this report that local solutions would have been cheaper, although you would argue not as good. Do you have any idea what the extra cost was of the Airwave project versus a local procurement?
  (Mr Gieve) The figure quoted in the report is £300 million, which was a comparison with a review conducted for ACPO. As you say, that would not have been a comparable system in terms of functionality.

  19. Do you accept the £300 million figure?
  (Mr Gieve) Yes.

1   Note by witness: The 17% return was arrived at by the project's financial advisers. It was endorsed by PITO. Back

2   Note by witness: In addition we used the public sector comparator because of the Treasury guidelines and to give an extra confidence check. Back

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