Examination of Witnesses (Questions 540
TUESDAY 26 FEBRUARY 2002
540. This was for learndirect?
(John Healey) This was for the Individual Learning
Accounts. For learndirect the system is different. To be
absolutely clear, for the ILA scheme they were registered providers
and not accredited providers, if that is indeed what I said earlier.
541. I listened very carefully, I can assure
you! For learndirect, the providers registered with that,
are there quality assurance and standards they have to meet before
they can register with learndirect?
(Mr Lauener) Certainly when learndirect set
up their learning hubs they went through a specification and contracting
process, and there was a quality assurance process around that.
If the Committee is interested we can send details of that. Indeed,
under the remit of the Adult Learning Inspectorate, the Inspectorate
is inspecting learndirect provision. That process has started
and, indeed, the first results of those inspections will be available
542. Certainly from my perspective, and I do
not know about the rest of the Committee, the reason obviously
you are interested in this, it was mentioned by Capita and they
explained the difficulties about the actual technical problems
of systems talking to each other. Where our interest would be
is around the whole quality assurance issue. We looked at the
fact that in the pilot stage, what we have been told by yourselves
from the Department, that TECs tended to use providers whom they
were familiar with; and, therefore, there was, if you like, if
not a written down quality assurance, some inbuilt quality assurance
because they were known providers. The scheme was set up to widen
the number of providers and we are obviously concerned about the
quality assurance issue; the fact that a lot of people coming
into learn were people who were not used to learning, and to expect
them to do quality assurance, in my view, was unrealistic. If
there had been a view that learndirect would be one way
of actually getting providers who had some quality assurance and
standards there already as part of the thinking of setting up
the process, then that is one thing. Are you saying, in fact,
it was just incidental that learndirect people had particular
standards and that there would be other providers who would be
registered. Where are their standards?
(John Healey) It is not incidental. learndirect
is a learning provision system which is set up specifically to
provide online and distance learning; and it has the quality checks
in terms of its internal contract. It also has the external checks
with the Adult Learning Inspectorate . The link-up we were unable
to make in the design of the scheme, as you say Capita told you,
was about getting the data systems to mesh with each other. You
are pursuing quite an interesting point. I am sure the Committee
knows but might be interested just to be reminded that in Scotland
there is a link-up with the Scottish University for Industry.
In these terms, to be a registered ILA provider for Scotland you
have to be a registered Scottish UfI provider. In order to be
a registered Scottish UfI provider you either have to have or
you have to be working towards certain quality standards, such
as the quality management system, and that is largely about internal
processes. So there is that link there, though not the meshing
of the data sets and the sort of benefits I originally talked
about. It was the Scottish University for Industry's responsibility
to investigate any complaints that arose about ILA-related provision,
or ILA-related learning material. There is something of a link-up
in Scotland, although it does not introduce the sort of quality
assurance concerns that you have, and certainly in terms of the
experience we have had with the ILA scheme, that we share. We
will need to design into any successor scheme a much stronger
provision than before.
543. In a sense the point I am getting at is,
did the requirement for some sort of quality assurance go out
of the window when technical systems did not mesh?
(John Healey) No, because learndirect was not
about providing quality assurance, as Peter Lauener said. It was
about, first, trying to link up the information so the individual
was better equipped with information about the options available
to them; and, second, to provide a link-up so that any caller
to learndirect could link through into the ILA registered
provider system. It was not about quality assurancebut
an attempt to explore the link-up before the launch of the scheme.
544. There seems to be a clear contradiction
in what you are saying and what Capita told us. Capita said that
their software system etc was designed on the assumption that
the learning providers register would be authenticated, accredited
and so forth. They said because of that that is why it was relatively
easy for the rogue trader to get access to the numbers they should
not have had, and this is how this disk could come onto the market
in November. They said the reason they produced their software
was because they were working from the start on the assumption
that all learning providers would be accredited. They gave us
the clear impression, because we were asking about it in quite
some detail, just as the scheme was about to go live effectively
they discovered that the software systems could not talk to each
other; that, therefore, anybody could register with their name,
address and bank account number. Capita were quite clearly saying
that the scheme was fairly open to abuse by training providers
who turned out not to be legitimate, and it had actually been
designed to be relatively light on security because all along
they worked on the assumption, right up to when they started,
that training providers would be accredited.
(Mr Lauener) I think there are two separate points
mixed up in that. The first is that there was a very clear decision,
as we have said, that this was a light touch programme with very
little quality assurance to make the market work. The reason for
that is that we expected that there would be a lot of providers
brought into the system, as there were, and we expected that they
would be fairly low value in terms of transactions, and that therefore
to apply the more traditional quality assurance mechanisms on
top of that would be a very high on-cost on what we expected to
be low-value transactions. That is one issue. We were quite clear
on this issue in the memorandum that in a successor scheme we
needed stronger quality assurance arrangements. The second issue
is about getting the systems talking to each other. I think there
was perhaps a bit of confusion in the way that Capita described
the process, the original expectation that we might be able to
get the learndirect information system and the ILA system
talking to each other. That was in the original contract specification
that was signed in November 2000, but that proved not to be possible.
I do not think that had that proven to be possible, that would
have been the answer on quality assurance, because that would
not have brought the quality assurance on its own, we would still
have needed to design a quality assurance. So the problem is not
that the systems did not speak to each other; the problem is the
decision on the light-touch quality assurance system, which brought
benefitsbenefits which we want to retainbut also
brought some problems.
545. Can I also ask you the question we put
to Capita as well on this? Capita were chosen as an expert company
to design and deliver this system. It says in the memorandum here
from the Minister that Capita were tasked to provide a robust
and functional system and then to operate it. We said to Capita
that this system was clearly not robust or functionally stopping
abuse, scams, fraud, whatever, and so forth. We said to Capita,
"Why didn't you say to the Minister, to the Department, right
at the start, "Yes, we can run this system the way you told
us to, but it will be wide open to abuse'?" We said that
Capita should certainly have spotted that, because they were telling
us in their prospectus which we have that they run housing benefit
schemes for various local authorities, so they would be very,
very much up on the idea of the fact that people out there will
try to defraud this sort of scheme. Capita came back essentially
to the point, as I said at the start, that they thought that the
learning providers would be accredited, would be legitimate, would
be honest, and that is why their system was so open to abuse.
If you chose Capita and paid them £50 million because they
are so good and they are so cheap, did not somebody fall down
there? Why did not Capita say to you, "This scheme is wide
open to abuse"?
(Mr Lauener) Again, in the "Lessons to Learn"
bit of the memorandum we have drawn out some points about security
in the system. We are quite clear about this, and in fact this
is a point we have discussed with Capita in preparing the memorandum.
We wanted to make sure that we agreed about the way that this
was described in the memorandum. We are quite clear that any future
programme will require stronger security measures, in terms of
specification, in terms of the architecture and then in terms
of the management of security once a system is up and running.
So we were quite clear that it needs to be better. Whatever the
quality assurance arrangements, we need stronger security. There
is certainly a balance and a bit of a trade-off, but it is not
that if you get much stronger quality assurance then you could
run with the same kind of security architecture. You need both
in any new programme.
546. So everybody is accepting now that this
has to be built into the next scheme, but surely when this scheme
was designed, why did not (a) your Department take notice of Treasury
publications on fraud, electronic fraud, etcetera, why did not
you spot that it was wide open to abuse, and why did not (b) Capita,
an expert firm that you paid £50 million to provide a robust
and functional system, say to you, "Look, this is open to
being ripped off"?
(Mr Lauener) It is very easy looking back now and
saying we can all see the problems which have happened and we
can all see some of the things that we should have done to prevent
547. No, Mr Lauener, it is not easy looking
(Mr Lauener) It is much easier looking back than looking
548. The question my colleague is asking is
that we all know that in the service provider agreement with Capita
originally there was going to be quality assurance. You took that
out because they could not meet the deadline and you wanted to
get the programme up and running. We understand that, and that
was the decision, but in terms of security, my colleague is absolutely
right, one would have expected the contract price for Capita,
and we are fascinated by all this because many of us on this Committee
want to see these public/private sector agreements work and work
well, but in this case, certainly in terms of the security, you
would have expected Capita to have given better advice in terms
of how to make the system secure, would you not?
(Mr Lauener) Perhaps I can make three points on that.
The first is that the point I was going to come on to in relation
to security is that there is a whole nexus of points in "Lessons
to Learn". The other one that I would draw attention to here
is the definition of "business model". Had we drawn
out the business model, not just defining the processes as we
did, but defining the responsibility of different partners and
the role of different partners as the business process worked
through, then I think we would have been able to test better the
programme that we developed in order to develop the possible security
problems and then to develop countermeasures. Looking back, I
can say that that was not done, and that is one of the lessons
that we need to build into a future programme. That will allow
a better definition of both countermeasures and management information.
On top of that, I am quite clear that the system, in terms of
access to providers to navigate around the system, needs to be
tighter than it was in the specification.
549. So as a consumer you are perfectly happy
with the level of service and the quality of service you got from
(Mr Lauener) What I have described is a system that
did not deliver the level of security that we wanted.
550. No, Mr Lauener, you are the consumer, you
were spending a lot of our constituents' money on this process.
Were you happy with the service and the quality of service which
you got from Capita?
(John Healey) Let me answer that and be blunt. No.
There were shortcomings in the security of the ILA system, shortcomings
in the specification, which is certainly the Department's responsibility,
drawing, I have to remind the Committee, on external expert advice,
on the guidance internally from Government as well as some policy
specialism that our officials brought to it as well. So there
were problems with the specification, but there were also problems
and shortcomings, in my view, in the provision of security and
the management of security once the system was up and running.
That is a matter between the Department and Capita, but clearly
Capita were the expert technical specialists that we hired in
this partnership to deliver the system, and I have to say, on
a very positive note, that we have worked very closely and very
constructively with Capita to try to get to the bottom of what
was going on. We are talking very constructively with them also
about the lessons that we need to draw from this, and we are exploring
with them, as we are with, for instance, the Learning and Skills
Council, options that we might have for the delivery of any successor
551. Two weeks ago I asked Capitawho
are coming to see us again tomorrowabout their expertise
in housing benefit. This follows on from what my colleague Paul
Holmes said about housing benefit procedures. There is great expertise
in this all over the place. I know from my work with local councils
over the years that with housing benefit there is a lot of fraud
there, massive forms to fill in and all that, yet on this particular
scheme a one-page form only to get access to the money. My question
to Capita was that with their expertise in all of this, they should
have realised that this scheme was absolutely wide open to abuse
of all sorts. That seemed to be the case if you look at your Annex
1 which said that in one month the number of complaints doubled
and the proportion doubled as well. That clearly was a time when
you said, "Well bugger this, we've got to draw the line under
here and stop this." I understand all this. Who designed
the form? Capita said, "We just did what we were told"
virtually last week when I asked them. Therefore, was the contract
wrong? Was it too sloppy? Who designed the form, and did you approve
the one-page form at the end of the day?
(Mr Lauener) I am not sure whether I can say in detail
Mr Pollard: I do not want the name or anything
like that. Was it your department or was it them?
552. Or was it KPMG?
(Mr Lauener) I thinkbut I would have to checkCapita
designed the form against the specification because they designed
the business processes that would make the ILA programme work.
I would have to take that away and confirm that, and I will do
that in a note. Again, we are clear that the set of systems and
processes that need to be put in place need to be more robust
in future, and that is the start point. What we must not do is
just default to the set of systems and processes that are in use
for what are generally much larger volume and value contracts,
because that would result in too heavy an on-cost on the programme
and make it much more difficult to achieve the involvement of
new, small-scale niche providers, many of whom have done an excellent
job on this. So we do need to find a new balance on this but we
do need more robust systems and processes across the piece.
(John Healey) I quite understand the Committee's desire
to, in a sense, get to the bottom of this and be able to point
a finger at, perhaps, one party or even one individual, but the
nature of the development work, as I have examined it and understand
it to have gone on, was very intense, very much developed between
the department and Capita, with other advice and guidance. So,
in a sense, who designed the form is perhaps not the question.
It was clearly an effort that would have been done between the
department and Capita. The two questions that are relevant, if
I may suggest, is who is responsible for it and then, I think,
I would have to say the department would have signed off that
form. Second, whose expertise was drawn on in developing that
form in order to provide data to service the design of the operating
systems. Clearly, whilst that was, again, jointly determined we
were drawing very heavily on Capita because they were clearly
our specialist technical suppliers and they were responsible for
the operational design and then the operational management of
the ILA system.
553. I would have expected Capita, with their
vast experiencewhere I started fromto say to the
department "Look, this system is open to abuse." It
is where I started from. Did they ever say "Hang on a minute,
look at housing benefit, look at the trouble we had there."?
I accept the point you made that you have got to be careful, this
is £200, not £200 a week, it is a one-off £200,
so you do not want a system that costs £5 million to administer,
you want it to be reasonable and proportionate. I accept all of
that. Did they draw to your attention that this was potentially
open to abuse and then come back to you in the last month and
say, tongue in cheek, "Well, we told you so, didn't we"?
(Mr Lauener) In the design stages we were, as John
Healey has explained, in it together and neither of us said to
each other "We are designing a system that is going to be
wide open to abuse". If we had done that the chances are
we would not be here today quite in this way. In the subsequent
monitoring and management of the programme, we sent some supplementary
notes with minutes of various meetings between Capita and the
department, which are quite hard to follow because they are all
out of context, but they are designed to give a flavour for the
way we discussed and managed things together during the programme.
There were several times when we were discussing problems together
and we discussed some of the earlier problems when there was no
cap on the 80 per cent discount and what we should do about that,
and the information that was coming through. From about June onwards
we were in almost daily discussion about how we could design out
the problems and Capita made a number of very good suggestions
about how we could tighten things up, and we implemented a lot
of these in July and over the summer. Despite going through all
that, we then reached the point in the Autumn when we thought
that this was a series of sticking plasters we had been putting
on a programme that was fundamentally flawed. Indeed, there were
a number of providers who, as quick as we were moving to try and
clamp down, were moving quickly to get round the things we put
in place. That is why we felt we had to stop and get precisely
to the bottom of the problems, go through all the investigations
and discussion with the police where we thought there was fraud
and abuse, and redesign the programme. So we were very actively
involved in sharing information and perceptions from the early
summer onwards, as evidence began to accumulate.
554. I would like to follow up from Mr Pollard's
comments. The Minister, particularly, seems unhappy with some
of the performance of Capita in various areas. I wonder whether
you could give an assurance to the Committee that Capita will
not be involved in any successor scheme because of their lack
of performance during the previous scheme? If you are not prepared
to give that assurance, why not?
(John Healey) I am not able and I am not prepared
to give that assurance. I will come back to that. I am unhappy
not specifically with Capita but I am unhappy at the situation
in which we find ourselves, with a scheme that was devised and
designed to be so innovative in the early months and had demonstrated
its value. I am deeply unhappy that it unravelled. I think responsibility
for that rests across the piece rather than just with Capita as
our Public Private Partnership provider. In terms of the successor
scheme that we are committed to introducing, one option, clearly,
is for us to tighten up the rules of the scheme, introduce the
quality assurance that we now, I think, are agreed is required
and to tighten up also the security in the operation systems,
and, therefore, to continue with our partnership with Capita in
order to deliver a secure and successful second scheme. That is
not our only option, because as I mentioned earlier on we are
looking at the role that the Learning and Skills Councils, certainly
in England, could play in the successor scheme, but it is clearly
an option and to rule it out at the moment would be a mistake
and would make it much more difficult potentially to deliver a
555. It is something you are prepared to look
at, because obviously Capita were one of the problem areas. I
accept there was more than one problem area, but it is something
you would look at.
(John Healey) I am prepared to look at it. In part
I am prepared to look at it because Capita are prepared to look
at it so constructively as well. I have said earlier on that as
these problems emerged over the summer, and facing the difficulties
that we have had in winding down and ending the scheme, and then
the investigations to get to the bottom of the problem, I cannot
fault the degree to which Capita have worked with us closely.
Clearly, we are also beginning discussions about whether we can
get over the sort of problems we have had and, if so, that could
be the basis for launching a successful successor scheme.
Chairman: We do want to get on to that quite
556. Very quickly, Capita informed us that they
were not giving you education advice and that that whole area
was not their remit. So they were suggesting that you needed another
group to give you advice; the DFES needed advice on education
monitoring provision. The whole of the Capita material that we
have had seems to be very much this whole process. For example,
the telephone calls they got on complaintsand you listed
the numbersseems to be a number-crunching exercise: how
quickly could they respond to complaints, not anything about the
nature of those complaints. It is this dysfunction between them
progressing something which was your original specification, whereas,
as the Minister indicated, the specification was the problem.
So if the specification is the problem, how are you actually then
going to input to that specification educational quality in terms
of both the provider and what the individual learner receives?
(Mr Lauener) A couple of thoughts on that at this
stage. I think we need to be absolutely clear, we did not commission
Capita to be experts on training quality, training provision
557. Despite all their experience in that area?
(Mr Lauener) Their expertise is in providing systems
to make things happen; to provide support systems. They are not
policy analysts, policy designers, and I do not think they would
claim to be.
(John Healey) We felt we had that expertise.
(John Healey) Which indeed we do.
(Mr Lauener) At that very broad level we are clear
about what we asked Capita to do. The figures that you talked
about are actually very important. I do not think it is right
just to view this as a data-churning process. One of the things
we wanted, very clearly, from Capita was a good customer service
interface; we wanted people to be able to 'phone up and get an
efficient service that they would recognise as a service. That
was actually about changing the nature of the way people related
with the learning system. So it was very important that when people
'phoned up they got a good service, and a lot of the figures you
refer to are about monitoring the quality of that.
559. Hold on, were the complaints trivial and
of the nature of "The money has not come through", or
whatever, or are they more serious about "The education I
am getting does not lead anywhere. I have spent the last three
(Mr Lauener) They covered both, and we did have a
system for analysing the nature of the complaints coming back.