Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

WEDNESDAY 7 NOVEMBER 2001

MR PETER GERSHON AND MR BRYAN AVERY

  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 UK.

  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 matter.

  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 events.
  (Mr Gershon) As it is with other areas of our activity.

Kali Mountford

  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 requirements—long 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 foundations stronger.

Mr Beard

  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 London Underground.

  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 factors—because they have got whole-life responsibility—outweigh 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 offer—and I have given some examples of what it can—that might counter-balance that additional cost of capital.

Mr Plaskitt

  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 suggestions—whatever 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 changing—and you listed three—culture, 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, which—certainly in recent memory—I 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, stationery—all 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.

Kali Mountford

  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 strategically?
  (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 customers—the Accounting Officers—are saying they would find helpful to them.

  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 was comprehensive?
  (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 themselves with.


 
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