Examination of Witnesses (Questions 400-419)|
WEDNESDAY 13 FEBRUARY 2002
400. Mr Doyle, we are bending over backwards
to be fair in this, but we have to ask the questions that our
constituents would ask. They would say, "We thought this
was a £50 million contract. Perhaps you will tell us how
much it ended up being worth to you." If 1 million gets to
2 million, and every new subscriber gives you an income, questions
would be asked, would they not, whether you did not want to pull
the plug on this or blow the whistle because it was a nice little
(Mr Pilling) You need to recognise that we won this
contract through a competitive tendering process. There are other
organisations that bid for this work. If as an organisation, as
you are putting forward, we would in some way make more money
with each account, that sounds ideal. However, what holds us back
from that situation is the fact that we go through a competitive
tendering situation. If you do that, you will be too expensive
and you will lose the deal. What you have to do with these sorts
of deals is take a view of where you think the most likely position
is going to be in terms of account holders, and that is our risk.
That is how you win the deal. So you take a view that it is a
million or a million and a half, and you have to price it in that
way. Another organisation may take a view that it is 1 million
or 2 million, and they price it in that way. The client, in this
case the DfES, gets best value from organisations like us taking
a risk on what the volumes will be, and that is what has happened
in these sort of cases. You cannot have an open-ended situation
where if we get to 2 million or 3 million we are going to make
lots more money, because we will immediately have excluded ourselves
at the point of going for the procurement. It would be too expensive.
(Mr Doyle) If I can just make one more point as well,
the process of the volume-based contract is about making sure
this could not run away and a contractor is left with a big hole.
The profit element, whether it went up to 5 million accounts or
whatever, the idea is that we cover our costs. The profit element
that we make, the percentage profit, should not change. It is
open book. The Department have our accounts to audit every year
to make sure we are not making super profits out of this. It is
not meant to be such that the more comes in, the more money you
will earn. It is meant to be a protection.
401. When the numbers of account holders increased
dramatically, this was still to your financial advantage, because
if it had not been, if you were incurring additional costs by
the need to recruit huge numbers of extra staff, you would have
flagged it up much earlier to the Department because you would
have been losing money.
(Mr Doyle) In the long term, in real pound note terms,
you are correct; we would have made money. Our declared profit
margin is 14 per cent. Fourteen per cent of £10 million is
one figure and 14 per cent of £20 million is a different
figure. So in real terms you make more money. That has not been
the case to date. In fact, the rapid build-up of the volumes gave
us far more problems than expected. As I said earlier, we had
a number of problems around service delivery, and in fact fell
behind our service level agreements and fell into service credits
with our customer through those times because we were struggling
to keep up with those volumes.
402. One more point on monitoring and reporting.
In your statement you refer to regular supply of management information
and audit reports to agreed schedules. This was your responsibility.
What w as the agreed schedule? As I say, how frequently were these
audit reports made?
(Ms Metcalf) Management information reports were passed
across on a monthly basis. There was only actually one audit conducted
by the Department of our process during that period.
403. At what point was that audit conducted?
(Ms Metcalf) It was conducted, from memory, I think
in the Spring 2001.
404. That is precisely the period that saw the
100 per cent increase in the number of accounts opened.
(Ms Metcalf) I think possibly slightly before that
405. That presumably can be verified.
(Ms Metcalf) That was a process audit. Yes, it can
be verified. I can supply dates. It was to have a look at the
processes in place.
406. In terms of the monthly management information
reports, were they linked to the regular meetings you held with
officers of the Department?
(Ms Metcalf) The meetings were far more regular than
the reports in actual fact.
407. Did the meetings consider the reports?
(Ms Metcalf) The meetings certainly considered the
reports and the meetings also considered additional information
which had been passed across. We had, over and above the reports,
a process for passing across information where we were concerned
or where we had had complaints from individuals, and there was
a process which we followed which the Department had set out in
terms of following up complaints and we passed across those instances
quite separately from the regular monthly pack.
408. So those meetings took place more frequently
than the ones at monthly intervals?
(Ms Metcalf) Yes.
409. And were those meetings minuted?
(Ms Metcalf) Most of those meetings were minuted,
410. And you would have copies of those minutes
as well as the Department?
(Ms Metcalf) We would have copies of those minutes,
411. I think the Committee would like to see
(Ms Metcalf) Again I am not quite sure what the status
of those is. I think they belong to the Department.
412. If the Department agrees, you would agree,
(Ms Metcalf) Yes.
413. There is one very quick question on the
contract. You say there was a volume-related element in the contract.
Were there any bonus or penalty clauses and, if so, how did they
(Mr Doyle) There were penalty clauses in terms of
a service credit regime, so there were service levels agreed which
we had to keep up to which were around a whole number of various
things and if we failed to do that, then we moved into service
414. Perhaps we will return to that when we
move on to customer service. In terms of the IT security, the
Government said on 24 October, when they first said that they
were going to close the scheme on 7 December, they set that date
and then all of a sudden in November they said, "We're pulling
the plug now". The rationale they have given for that in
letters which have been publicised and given to the Committee
was that on 21 November they obtained a CD disk which had a large
number of ILA numbers on which could be used and which was for
sale. There has been a lot of speculation about where somebody
would get all those numbers which they could then tout around
and sell to learning providers. The Government said that is why,
because they got that disk on 21 November, 48 hours later they
said, "Right, the scheme is shut down. That's it". Have
you got any comments about how anybody would get hold of a disk
with large numbers of unused ILA account numbers on it?
(Mr Pilling) I think, as we said earlier, the account
number was in fact just a reference number to identify holders
in the system. That information in terms of what the account number
meant was actually widely available and published on the website.
What we have here are instances where learning providers were
going in and accessing all the information of names and addresses
many times into the system and loading it on to a diskette.
415. So you are saying? Explain that again.
(Mr Pilling) What I am saying is that an authorised
learning provider with their authorised user ID and password would
go on the system and because of the way we held the information,
which was as has been said, it is effectively a serial number,
they were going in and they were drawing out information from
416. About one account or they could therefore
(Mr Pilling) They would then put in more numbers and
draw out more names and addresses from the system.
417. In response to a written question which
I put, I was told that most of the numbers were sequential and
there was one that was randomised. If you had a £50 million
contract to draw up around this scheme, is that a failure on your
part in making the system too easy to be worked in that way?
(Mr Pilling) I think, coming back to the point that
we were working under the belief that we were talking about accredited
learning providers, if you think about the process of what an
accredited learning provider is, we are actually talking about
individuals who actually are working for companies that are in
some way not bona fide and that is quite strange to us.
In relation to this scheme, we were talking about accredited learning
providers and that was the basis on which we allowed them into
our system and which we have subsequently found out to be untrue.
418. So you are saying that the numbers were
so open for somebody to work out a whole series
(Mr Pilling) Not somebody, but for a learning provider.
419. You are saying that that was so easy to
do because you thought the learning providers were bona fide
accredited people, but earlier on we heard in great detail from
you that you accepted the Government's drawing up of the scheme
which had no quality assurance of that kind whatsoever.
(Mr Pilling) At the time the system was developed,
we were working to a specification which said we were talking
about accredited learning providers in relation to the Learn Direct
system of learning.