Examination of Witnesses (Questions 20-39)|
WEDNESDAY 7 NOVEMBER 2001
20. Suppose Partnerships UK do not conform to
the policy you have laid down? What do you do about it? They are
the practical wing of the Treasury operating in PPP and PFI with
departments and so on. You are laying down the central policy
on these matters. How do you know if central policy is having
any effect on what they are doing?
(Mr Gershon) For example, if we did a Gateway Review
of a project and the set of circumstances you have identified
were discovered, we would then take that matter up with Partnerships
21. You would discuss it at the Board and try
(Mr Gershon) I would not wait for the Advisory Board,
I would be on the 'phone to them there and then to deal with the
22. You have no formal way of ensuring your
policy is adhered to, it is a matter of chatting?
(Mr Gershon) Ultimate accountability for these projects
rests with departments, it does not rest with Partnerships UK.
They are advisors to departments.
23. In other words, your policy is dependent
on persuasion and influence rather than any direct control over
(Mr Gershon) As it is with other areas of our activity.
24. I think Mr Beard has raised a very important
point here. I am quite concerned by your answers. You describe
to us a tripartite relationship dependent on good relationships
between the individuals concerned. Are you not concerned that
there is not something more concrete about that relationship?
(Mr Gershon) As I said, there is a framework agreement
between the Treasury and Partnerships UK that defines the overall
relationship, and defines what services we expect, within that
framework agreement, Partnerships UK to deliver.
25. Can you explain to the Committee, so that
we can feel confident in what you are describing, that should
a problem start to emerge in a contract you would be sufficiently
capable of responding to the problem at an early enough point
to put the matter right?
(Mr Gershon) In central, civil government terms, that
is exactly why PFI or non-PFI, we have introduced the Gateway
Review process, because historically there has never been a structured
way of having an opportunity to have an early assessment of what
is going on in a project long before it may ever get to procurement.
As I identified in my review, which is now reinforced in the Gateway
Review process, the greatest opportunity for management to influence
the successful outcome of a project is in the early stages of
its life-cycle, when people are first thinking about it and its
requirementslong before you then advertise the requirement
in the European Journal. As I put in my conclusion, there was
no way of finding out whether projects were being constructed
on strong foundations. That is exactly why we have put this technique
in place, because it is very well proven in the private sector,
and the experience to date is that it has been extremely well-received
within government because, for the first time, there is, as I
say, a structured way of assessing what is going on at an early
stage in a project and providing constructive value-added recommendations
to Accounting Officers about what needs to be done to make the
26. The Mayor for London and Mr Kylie, the Transport
Commissioner, plainly do not fully agree with the benefits of
PFI. They say "We can go out and borrow money and issue bonds
and it is a darned sight cheaper than PFI". What is your
answer to them?
(Mr Gershon) I cannot comment on the specifics of
27. Take that as a general case.
(Mr Gershon) The Government can borrow money cheaper
than the private sector, yes, it is absolutely true, they can.
Let us put this into context: the typical capital value of a PFI
project is between 20 and 25 per cent of the total life-cycle
cost of the project. The private sector has to borrow money at,
say, 3 percentage points above what the Government can buy, 3
per cent of 25 per cent is less than 1 per cent. So, yes, that
goes against the private sector. The difference is what they can
do, in terms of greater innovation, because, as I said, as they
have to take the responsibility for the total, life-cycle cost
they have got to make decisions about what you design into the
asset and the implications of that design on whole-life costs.
You may be able to design things in which add to up-front cost
but which give you far greater energy efficiency over the life
of the project. The issue is whether those sorts of factorsbecause
they have got whole-life responsibilityoutweigh the costs
of the extra money they have to borrow. We have to put this in
context. The issue is what else the private sector can offerand
I have given some examples of what it canthat might counter-balance
that additional cost of capital.
28. You spoke earlier about your Supervisory
Board. How often does that meet?
(Mr Gershon) It meets about three times a year.
29. Do all the Permanent Secretaries come?
(Mr Gershon) No. As Bryan Avery said, it includes
the Permanent Secretaries of the major spending departments together
with senior representation from the Ministry of Defence. The Comptroller
and Auditor General is a member and there are two external members.
Following the machinery of government changes, for example, because
DEFRA comprises MAFF plus Environment and some other bits and
has become much more significant in procurement expenditure terms,
the Permanent Secretary of DEFRA has joined the Board, although
as the Permanent Secretary of MAFF he was not a member of the
Board. So the Board is keeping pace with the evolving machinery
of government changes.
30. In relation to the decisions made at the
Supervisory Board, how are they transmitted down into all the
departments, whether they be instructions, directives or suggestionswhatever
comes out of the supervisory board? How do you trickle it through
the whole of the government purchasing process?
(Mr Gershon) It depends on the nature of what has
been discussed. What happens is that there are minutes of meetings
which go to all the Permanent Secretaries, not just those who
are members of the Board. Those Permanent Secretaries who are
not members of the Board get copies of the papers that have been
discussed at the Board. For example, if you take the piece on
OGC best practice, these two pages that are focussed at the top
of the office to help them deal with specific topical issues,
once the Supervisory Board has agreed them we have an established
distribution network and they get released through that distribution
network. So, for example, if you take the one on why IT projects
fail, I think that has now gone out to over 1,000 recipients within
government. The Board nominate to us who is their focal point
for receiving it and how many copies they want. Generally, it
goes to their Management Board and they would circulate it to
the management of their executive agencies and NDPBs. If we take
a more recent discussion we have had about beginning to shape
our medium-term strategy as part of SR2002, there was a discussion
at the Board about the emerging strategy and they gave us some
steers and we have to take account of that now in our detailed
work inside the OGC in terms of forming our SR2002 submission.
That is not something that would get widely published because
there is no action departments are required to take at this stage
as a result of that decision. It very much depends on what the
Board has decided.
31. That is a description of the flow out from
you to the departments. How do you then measure the impact of
what you have sent out? How do you know if it is making a difference?
(Mr Gershon) If you took the best practice guidance
as an example, in due course we should see, over time, the effect
of that being reflected in what we see happening in individual
Gateway Reviews. That would be one way of testing the impact.
32. "In due course" and "over
time". There are no targets out here?
(Mr Gershon) Our target is expressed overall as a
value for money improvement target over a three-year period, for
which there is an agreed methodology, both with departments and
with the NAO as to what that methodology is and how departments
should then report back to us on an annual basis. What we do should
generate value for money improvements in the departments and they
then report back to us on an annual basis what those improvements
have been in tangible value for money improvement terms.
33. You said earlier that this was going to
be a long-term process of changingand you listed threeculture,
behaviour and attitudes. I take it you are using those annual
reports back to see how much progress you are making in terms
of changing culture, behaviour and attitudes in the government
departments. Would I be right?
(Mr Gershon) There are some more immediate tests.
If you take something like the Gateway Review process, what I
perceive happening is that it is being embraced by departments,
it is not seen as an imposition. I have been in situations where
I have seen departmental Permanent Secretaries making unsolicited,
very positive remarks about the review process and showing active
leadership in their own departments about the use of this Gateway
Review process to make projects better. So there is that sort
of much more immediate feedback as to whether we have produced
something which is perceived to be adding value and hitting the
mark. Clearly, however, the objective of that will be in these
value for money improvement returns that the departments make.
34. With the experience you have had so far,
would you be able to say that you can see it having a beneficial
effect on procurement in all government departments? Is there
already visible evidence that they are doing it better?
(Mr Gershon) As I said, we have got things like the
Gateway Review process and the positive response of departments
to that, and the demand for Gateway Reviews. So that is one measure.
We are seeing other examples, I think, of where we are trying
to take a more strategic approach to managing our relationships
with key suppliers, whichcertainly in recent memoryI
do not think central civil government has done. Suppliers have
dealt with departments on a bilateral basis, looking at an individual
pot, often. For the first time we are starting to look at our
relationship with these key suppliers across the whole spectrum
of our relationship with the government and trying to figure out
ways in which that relationship can be enhanced. One example of
that is how we are attempting to have a more strategic relationship
with Consignia, the Post Office, with whom the Government does
hundreds of millions of pounds worth of business. We have never
had, at strategic level, a discussion with them about how we could
get better value for money out of that relationship; how we could
start to look at the total end-to-end process between government
and the Post Office and see whether there is opportunity to take
cost out of that process somewhere, and how we could get a better
quality service. That is something that was not done before. I
know from my experience in the private sector that developing
those sorts of relationships leads to medium and long-term benefit.
At this stage, in my view, it is too early to say whether we are
going to see the same effect in the public sector, but there is
a lot of support from departments to do this. This is not something
that I did and forced on departments; they wanted to do it. In
fact, much of the work was actually led by an interdepartmental
Post Office user group. What we did was to give it some sort of
top level leadership within government to take the work forward.
(Mr Avery) It is also worth adding the initiatives
that we have taken in terms of harnessing the collective purchasing
power of government, by putting in place a number of new arrangements
so that departments can take advantage of a better deal. So, for
example, we have done something with Vodafone on mobile telephony
which has been taken up very strongly right across the central
government sector and, indeed, the wider public sector. We have
put in place a number of other central contracts in areas such
as hotels, stationeryall of which have been done in close
partnership with the departments and take up is very encouraging.
So I think that is another example of where we are beginning to
make a real difference.
35. Good. What about defence procurement? It
is outside your remit, is it not?
(Mr Gershon) Yes.
36. Why do you think that is, and do you think
it should be?
(Mr Gershon) Firstly, it was outside the remit of
the review the ministers asked me to undertake, and I think the
reason for that is because the MoD had already undertaken a review
of its own procurement activities as part of the Strategic Defence
Review and had introduced what is now called "Smart"
Acquisition. So they were already, in a sense, further ahead with
their own reform programme than central civil government was.
Having said that, when the OGC was created and the Supervisory
Board was created, it was recognised that there were opportunities
for co-operation with the MoD. Therefore, the Chief of Defence
Logistics (a four-star officer) is a member of my Supervisory
Board. That is a sort of top level manifestation of interaction
between us and the Ministry of Defence. For example, in some areas
where we are doing aggregated procurement, then the MoD is included,
and it has benefited from the deal we set up that Bryan has referred
to with Vodafone. They have done a lot of work in the skills area
and the skills you need to support modern acquisition in the 21st
century, so we are working closely with them to make sure that
the work that we are doing on skills development in central civil
government in acquisition builds on and relates to the work they
have already done so that there is not unnecessary duplication
in this area. Those would be two examples of the sort of co-operation
that we are trying to build with the MoD.
37. I am interested in the best practice, Mr
Gershon. I have been looking at your best practice guide. There
are a few questions about it. First of all, does it form part
of some over-arching best practice guidance that should be used
(Mr Gershon) There is a huge amount of what we call
now business and operational guidance that we inherited from the
various organisations that form part of the OGC. It is massive.
Because it arose from quite independent sources it is not entirely
coherent and it is not entirely consistent. One of the tasks we
have got to do, and we are doing this in conjunction with departments,
is to identify some sort of priority sequence; in which areas
do we need to start harmonising guidance and advice? If you look
at the guidance that emanated from the PFI campaign, about partnering,
it is slightly different and uses slightly different terminology
to the guidance that had emerged from the construction procurement
group, which again was slightly different to what had emerged
from the IT community. My view is that when you get to detailed
practitioner level it is fine to have domain-specific different
terminology, but having been a very senior manager in the private
sector I do not think it is acceptable and it certainly does not
make guidance easy to use. If you are going to Accounting Officers
and saying "Here's IT, we will think about this terminology
and this sort of guidance about partnering, and if it is construction
it is different terminology, slightly different guidance and if
it is PFI and construction, well, you pays your money and you
takes your choice as to which top level guidance you should use"
that is not acceptable. We have to make it easy for departments
to use our guidance in a more consistent way in the future. At
the same time, I personally, having worked as a senior manager
in the private sector, do not think it is easy to expect very
busy people to be given a 50 or 100-page document which is really
designed for middle management and say "Read this. Whatever
you need as a top manager is in here". So the concept of
best practice guidance came, in addition to our business and operational
guidance which is focussed at the practitioner and the middle
management level. I went to the departments and said "Where
are there areas at the moment where you feel some short, practical
advice would help you do your jobs better?" So they, in a
sense, have selected what is emerging as they key areas for guidance.
They said "This is where we would really appreciate guidance;
something about how we can exercise our role properly now in IT
projects. What does all this partnering stuff mean?" The
most recent one we have introduced is around top management's
role in successful management of long-term service contracts.
We have some other products in preparation, but it is very much
driven at the moment by what that segment of my customersthe
Accounting Officersare saying they would find helpful to
38. Are you telling me that this, what looks
like a tick list, for each of these points there would be some
other guidance that people could refer to to put these into context?
(Mr Gershon) I do not think it is a tick list. Many
of those questions are quite open-ended questions in which it
is not possible to give a simple "yes/no" answer or
tick in the boxes.
39. Would you really say that this list of questions
(Mr Gershon) We did not just sit with towels over
our heads and just create that. We created a draft, we then talked
to the NAO, we talked to industry and we talked to academia, so
that we were confident, when we put that out, that it did represent
a critical list of issues that top management need to concern