Select Committee on Treasury Minutes of Evidence


Examination of Witnesses (Questions 120 - 140)

WEDNESDAY 16 JANUARY 2002

MR DAVID MITCHELL, MR KEN BARTON AND MS JO CONNOR

  120. Because you are not negotiating all these every time; I see.
  (Mr Barton) That is correct, and they know, fundamentally, the customer at that time has already had pre-qualified, if you like, the status to supply, in their suitability to provide those services, but it still provides scope for the specific requirement that that customer has underneath that framework.

  121. But in your memorandum, although that looks a very plain advantage, because you get halfway there and then you have just got the other 50 per cent to do on everything, you say: "Currently, we are assessing the benefit, in terms of additional business gained and reduced costs. . . against the increased cost of administration and bidding. The current feeling is that the return is closely balanced, though this is not substantiated by fact." Why ever get involved in it, if that is the position?
  (Mr Mitchell) We are currently reviewing what the impact has been in our engagement in the framework contracts; that information, that data, has not yet been clarified, if you like, and worked through. So we are not here in a position to say definitively whether or not it has, or has not; but the feel of BT at this stage is that engagement in framework contracts, on balance, is the right thing to do.

  122. What I am not sure of, Mr Mitchell, is, from what Mr Barton has just said, it is obvious there are some benefits, because you go in for 50 per cent of the contract, you go in and negotiate it and then you can have half a dozen contracts on the basis of that one negotiation, rather than doing it every time. So, plainly, there would be benefits from that. So what are the countervailing factors that you are saying here may cancel out the benefits?
  (Mr Mitchell) I think, within the process that you have, because it is, what is the best way to describe it, the situation you have, because you have a defined number of people within the various categories, so there are the frameworks but there are people within the categories, a lot of Government business is being channelled through that particular framework process. Therefore, prior to that, there is a very competitive thing that results in the price being of great consideration; so, as part of that. It is a very competitive environment within the frameworks, to get in the frameworks, and that means that you have to make a decision on balance, because it is likely, not always but likely, that the price of the service will have some impact from aggregation. So, therefore, you are balancing the benefit of having a reduced procurement process, 50 per cent, to use the analogy, of the contract being set, with the need to make sure that the price is as competitive as it can be, and that is the balance that is being made.

  123. So if you come to the conclusion that the advantage that has been outlined by Mr Barton, and the counteractions, which I am not sure I am totally clear about, that you are outlining, mean that there is no advantage in it, what are you going to do?
  (Mr Mitchell) I think, at this stage, we will have to reserve judgement until we have all that information in our possession. I think it is unlikely that that will be the case. I think the engagement with framework contracts will remain a positive thing that BT would wish to engage in.

  124. But, in the worst case, are you saying that, if this turns out to be the case and that things are balanced, BT will pull out from these contracts?
  (Mr Mitchell) No, I am not saying that, and I would reserve judgement until I had all the data in front of me.

  125. Again, I am not quite sure why this remains in the memorandum, if it is a non-issue?
  (Mr Mitchell) I think what is made in the résumé, it says that it is being reviewed, which is the case. I think the actual wording says, the current feeling is that it is closely balanced, and I think that that is a fair statement, and when we have the data I will quite happily come back to the Committee.

  Mr Beard: Thank you.

Mr Cousins

  126. Is what you are saying to my colleague, Mr Beard, the fact that if you "low-ball" a price you cannot do it selectively, you have to do it for everyone?
  (Mr Mitchell) I am sorry, can you explain all that, please, Mr Cousins?

  127. If you go in low to fix a deal, the framework agreement means that is lodged then and it is accessible to a whole range of other people, and the price is fixed for them as well; that is what I meant. So if you "low-ball" a price, and I am not suggesting there is anything improper about that, that is your market decision, but if you "low-ball" a price, the framework agreement means it is accessible to everyone?
  (Ms Connor) Yes. Once you have put in that price, if that price is then accepted, and dependent on what the framework contract looks like, if I give you an example of two, to give you some context on this, if you take what is called S.CAT, which is for the provision of consultancy services, and then if you take a contract which is called G.CAT, which is for the provision of anything from a printer through to replacing a telephone system, perhaps, or migrating over to another IT system, once you have gone in and you have given a fixed price for those particular things, and the OGC are very strict about you must specify how many men, for how long, doing what job, so the prices are very, very strict, you cannot change them. Once they are in, those prices are open to everybody, central and local government, for services, and you must abide by those prices.

  128. How big is the management fee for the contract, that you refer to in paragraph 10 of your memorandum?
  (Ms Connor) The management fee can differ, and I am looking into this now because I am still trying to absolutely tie this down, and I am happy to provide that data further on; if we take an approximate figure of around 3 per cent.

  129. Three per cent; and you also mention, in paragraph 7, you are not sure that these framework agreements are legal, within EU rules, anyway?
  (Ms Connor) Yes, we do say that; but that may well be our lack of understanding, to be honest with you.
  (Mr Barton) There is no suggestion that they are illegal. The status of framework contracts is a continuous dialogue, which I believe is the responsibility of the OGC.

  130. We are having a lot of backtracking from you this afternoon; and let us just be clear about this. In paragraph 7, you say: "we are not sure what the formal legal status of framework contracts is. . ."; is that still the case, are you still not sure what the formal legal status of framework contracts is?
  (Mr Barton) I think it is true to say that there is a lack of clarity about the continuing and evolving status of framework agreements, that there is, as we understand it, continued discussion about the status of framework contracts and about their evolution, and it is never entirely clear, because some of those may be a matter of interpretation.

Mr Beard

  131. For how long have they been going, these framework contracts?
  (Mr Barton) For some years.

  132. Has it not been found out in some years then, if they are illegal?
  (Mr Barton) I am sorry?

  133. Why has it not been found out during the period they have been on the table?
  (Mr Barton) It is quite clear that the framework contracts that we have engaged in, the status of the validity of those, endorsed by the Office of Government Commerce, in this particular case, are clearly legitimate, and we contract on that basis, that the issue of the standing of framework contracts, as I understand it, is a continued discussion about the evolution and interpretation, and the operation of framework contracts is itself perhaps, over a period of time, a moving target.

Mr Ruffley

  134. Can I ask just one, quick supplementary. You do have an internal, in-house legal department?
  (Mr Barton) We do, yes.

  135. And, presumably, when you are signing these agreements, they bless them, they are cleared by your in-house legal department?
  (Mr Barton) Correct; so, clearly, for any framework contracts that we have engaged in, in those processes, it would have been carried out within BT and they would have been perfectly happy with those arrangements and would have accepted that.

  136. So there is not a problem about the legality then?
  (Mr Barton) No. I think the comments actually refer to the ongoing status of framework agreements.

  Chairman: Perhaps you could clarify that for us, if you are replying to us?

  Mr Ruffley: Can I just say, the paragraph from which Mr Cousins has read does not talk about "ongoing". it talks about the legal status of framework contracts, you were talking about ongoing. I just think we need to be absolutely clear about whether or not these are legal or not, and it seems to me that it is a critical point, your corporate organisation?

Chairman

  137. Can we ask you to respond to that specific point for us?
  (Mr Mitchell) We will come back to the Committee on that, yes[2].

  Chairman: Thank you.

Dr Palmer

  138. You refer, in the context of the GTM framework contract, to the dangers over time of creating a single dominant supplier and being in an inflexible position that is difficult to reverse. I think, perhaps, that in the contracts of BT we are familiar with the problems of major suppliers. Does the Government really have the spending power to make this a real risk, especially in the IT and telecommunications field?
  (Mr Mitchell) I think it is a considering factor, and in certain instances the buying position of Government is significant enough to effect the market position. The point that was getting over in the statement, I think, was the need to constantly consider balance between the benefits of engaging with a single supplier and the benefits that that brings, coupled with, potentially, considerations regarding the benefits that are given from innovation, creativity, when you have a competitive environment in play. So I think the statement in there is about being aware of the considerations that are needed in that context.

  139. Yes; from this and earlier answers, I am getting the impression, which may not be correct, that, on the whole, all things taken into consideration, you would prefer an open playing-field without framework agreements, but, of course, if there are framework agreements, you will work in that context, if you can. Would that be a fair statement?
  (Mr Mitchell) I do not think that is a fair statement. I think the market will determine the place for framework contracts and will determine the place for open negotiation.

  Dr Palmer: Thank you.

Chairman

  140. Mr Mitchell, thank you very much indeed. There are a few points there we would like to hear from you again on?
  (Mr Mitchell) And we will reply, accordingly.

  Chairman: Thank you very much, and thank you to your colleagues.





2   Note by Witness: "We have concluded our investigation into the legal position regarding European procurement law and are satisfied that there are no areas of concern. We will continue to monitor development in the use of framework contracts, ensuring their adherence to European procurement laws. If we have any concerns we will take them up directly with the Office of Government Commerce." Back


 
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