Examination of Witnesses (Questions 100-119)
SIR NICHOLAS MONTAGU KCB, MR JOHN YARD CBE, AND MS LIS ASTALL
MONDAY 3 DECEMBER 2001
100. Can I turn you first, please, to paragraph 3.18 on page 17, a point which has not been raised yet. I shall probably come back to something we have talked about but can we start with this. Paragraph 3.18 makes it clear that the decision to go ahead was taken because the risk of damages from some other European firm claiming that you had done something illegal under European law was small compared with the cost of delaying the work. The decision was taken to go ahead with the work because there were unlikely to be damages. It might not be illegal but even if it was the chances are that nobody would challenge it. Do you yourself believe that what you did was legal under European law?
(Sir Nicholas Montagu) Yes.
101. Sir John, can I ask you the same question?
(Sir John Bourn) I think that it is not clear whether it is legal or illegal under European law. What would be necessary would be for some aggrieved alternative potential supplier to take action in the courts to test whether it was so. What I thought was right was to bring this to the attention of the Committee and to make clear the uncertainty in relation to the point.
102. Was the advice you were given, Sir Nicholas, that it was legal?
(Sir Nicholas Montagu) The adviceand I may say, Mr Rendel, that subsequent advice, we went back to lawyers in the light of this impending hearing, remains that it was legal. The advice we got is as reported by Sir John here, that the likelihood of such a challenge being mounted was very slim. I am told that such a challenge would have been unprecedented and were it to be mounted the chances of it succeeding were extremely low. As you say, paragraph 3.18 records that.
103. Can we leave that lot behind for a moment and move on to look at paragraph 1.4 on page eight. The last bit of that paragraph says that "By April 2000, the original system had been fully implemented, except for some features judged to be of a lower priority than later enhancements".
(Sir Nicholas Montagu) Yes.
104. What were the features which had not been implemented by April 2000 and have they now been implemented?
(Sir Nicholas Montagu) No, they have not yet because we have rightly been concentrating on major issues like the software releases which support stakeholder pensions and bereavement benefits. I will tell you what the lower priority areas were. They were the automatic printing of a small number of adhesive labels, halting production of bills in the small number of cases where the calculations showed the amount owing as zero and putting NIRS 2 generated letters going abroad into airmail envelopes. These really are minor issues, particularly when you put them alongside the issues which affect stakeholder pensions and bereavement benefits.
105. These were features of the original contract they were originally expected to deliver?
(Sir Nicholas Montagu) I believe so, yes.
106. You are still expecting them to go in eventually?
(Sir Nicholas Montagu) Eventually, yes, that is my understanding.
(Mr Yard) We look at these things through that prioritisation mechanism that we talked about earlier and see whether or not there remains a business drive for that sort of change to be delivered. We would start with the premise that they would go ahead but if we felt that there were other things which were more important then we would drive those other things rather than something which is fairly minor in terms of its benefit.
107. Would you say, therefore, the NIRS 2 computer system as originally specified is not yet fully operational?
(Sir Nicholas Montagu) To that extent, yes. In all its major elements it is fully operational. There have been new releases. These have gone extremely well. As you have already heard, the system is functioning well in excess of contracted availability.
108. You say it is not yet fully operational in the sense of its original specification, but I asked the Chancellor of the Exchequer when he expects it to be fully operational, and Dawn Primarolo, the Minister, replied just a few days ago on 12 November that the NIRS 2 computer system is fully operational. That seems to conflict with what you have just told me.
(Sir Nicholas Montagu) I suspect, and this is not something I have discussed with the Paymaster General, what she was talking about was the key outcomes for the major issues which have engaged Parliament. Those are the issues directly supporting national insurance contributions and national insurance benefits. I repeat, these are very, very small and peripheral aspects of what is a huge system.
(Mr Yard) And they were taken out by agreement between ourselves and Accenture rather than just ignored.
109. When you say "taken out", postponed is what you told me before, not taken out.
(Mr Yard) Postponed.
110. When did the need for more work than could be managed in the original contract really become apparent?
(Sir Nicholas Montagu) In April 1999.
111. How much of NIRS 2 was not completed by then, the original NIRS?
(Sir Nicholas Montagu) I do not, I am afraid, have the detailed figures on that to give you. As I say, our first step when we became responsible for NIRS 2 was to confirm the basic robustness of the system.
112. I ask the question because it seems to me you have said that you had only a number of possibilities, one was to break the contract, another was to carry on with an extended contract, was there not an alternative which was simply to say, "You people have not actually performed, you have not fulfilled your part of the contract anyway, so you have broken it and we now want to set up with a new supplier"?
(Sir Nicholas Montagu) This, if I may say so, Mr Rendel, rather covers ground which I have been over with the Committee before. We took the view, and this is the view strongly supported by ministers, that the most important thing was to get the system stabilised and to get the partnership on to a sound basis. As Sir John's Report recognises, we have done that. The last thing we wanted to do was to get into an unnecessarily adversarial situation with Andersen Consulting, as they were at the time. We wanted to get into a partnership so we could deliver the key outcomes which are the benefits to the public.
113. Even though that might have meant you would not have had to pay the £44 million break costs in going to what might have been a cheaper supplier for the extension of the contract?
(Sir Nicholas Montagu) I think that pre-supposes an awful lot of things. First of all, there would undoubtedly have been protracted and costly litigation which would have taken Andersen Consulting's concentration off improving the system. You would not have got over the difficulty of transferring the system to a new owner, nor would you have overcome the issue of intellectual property rights. I have to say I think it would have been messy and highly risky in terms of delivering the outcomes that ministers required.
(Mr Yard) We were concerned about the stability of the system and the way it worked in April 1999. That was the main reason why one of the pieces of work we undertook at the beginning was a technical audit to make sure the system was actually robust and strong enough to take the changes we wanted to make.
114. When you decide who to award a contract to, how much account do you take of their past performance?
(Sir Nicholas Montagu) Very considerable.
115. Does that mean you will never use Accenture again?
(Sir Nicholas Montagu) No, it does not mean we will never use Accenture again. It is an element. Certainly on the basis of Accenture's current performance, I am extremely satisfied with them.
116. In spite of the fact that the original contract was so delayed that it forced you into a new contract which may well have cost more than it could have done if you had gone with somebody else?
(Sir Nicholas Montagu) There is no evidence for that, Mr Rendel. The original contract, I repeat again at the risk of tedium, was regarded as providing exceptionally good value.
117. Not surprisingly, coming in at the bottom
(Sir Nicholas Montagu) That was a National Audit Office finding. I have readily admitted that there were initial difficulties with the system, but the system has now been stabilised. It is performing exceedingly well. I am more than satisfied with its performance and with the partnership with Accenture.
118. You said at the beginning that you had a choice but the other alternatives were less attractive, and you keep pointing out that Sir John and the NAO have agreed this, and I think we have all accepted in this Committee that given the position you got into it was probably the right decision to go for an extended contact. But if you were looking at a horse raceI do not know if you are betting man
(Sir Nicholas Montagu) No, Mr Rendel. The Inland Revenue does not encourage that sort of thing.
119. Sometimes in this Committee we have tended to suggest that we ought to be taking more risks, so maybe this is something we ought to be encouraging the Inland Revenue to do in future.
(Sir Nicholas Montagu) The winnings are tax-free, and that is not something we like!
5 Ev 23, Appendix 1. Back
6 Ref footnote to Q 54. Back