Examination of Witnesses (Questions 1
- 19)
MONDAY 16 FEBRUARY 1998
PROFESSOR B FENDER
Chairman
1. This afternoon we shall be taking evidence
on the Comptroller and Auditor General's report on the management
of building projects at English higher education institutions.
The witness is Professor Brian Fender, Chief Executive of the
Higher Education Funding Council for England. Welcome, Professor.
We will go straight into questions, if that is all right by you.
I will start with a reference to paragraphs 2.10 to 2.12 and Example
2, page 17. The National Audit Office found that a number of institutions
visited had not quantified their space requirements or assessed
actual space use through surveys before starting new developments.
Are you satisfied, in the absence of such information, that institutions
were right to commission the new buildings they did?
(Professor Fender) I am sure institutions had
a lot of knowledge about the needs. I should just like to say
a little bit about the nature of the accommodation which universities
use. It is quite complex really. There is reference to the normal
classroom and lecture room use, then there are laboratories and
special facilities associated with subjects like art and design.
Then there are the libraries-learning resources centres as they
are often now called-and computer centres, offices, sports, social
space, student residencies and lastly storage. You have a lot
of different kinds of space there. What is referred to here often
is the question of classroom facilities and the needs there, but
by and large I am pretty satisfied that institutions have a good
knowledge base to establish their need.
2. As the report says, four out of ten did
not quantify that.
(Professor Fender) That raises the question. I
gave you the whole range of different kinds of accommodation because
some of it is easier to quantify than others. Even the simplest,
which is the use of lecture theatres and classrooms, is quite
a difficult exercise.
3. I am going to move on in my questions
but I suspect others will come back on that, particularly given
the Welsh report indicated the same problem rather earlier on.
The next item I want to raise is on paragraphs 2.14 to 2.22. The
National Audit Office identified option appraisal as an area of
weakness. Does your revised guidance encourage institutions to
carry out option appraisal as part of their internal decision-making
processes and ensure that such appraisals are technically sound?
(Professor Fender) May I again give a little bit
of background? I do not want to be too lengthy about it. What
we are talking about in terms of this report are the formal processes
associated with option appraisal. I believe academic institutions
are ones which are well used to a proposition followed by a lot
of debate and discussion about whether a particular solution is
the right one or not. We may not be recording all that natural
exchange and challenge which I would expect, indeed am pretty
certain, preceded these projects.
4. I think you would find if we looked even
at the investment appraisal side of these processes that there
were errors in nearly all of them which is not really dealt with
by debate. Others in the Committee may wish to come back to that.
I will move on again to paragraph 3.18 of the report and Example
13 at the top of page 37. This describes the cost savings which
can be achieved through the application of value engineering techniques.
This technique had only been applied to a few of the projects
examined by the National Audit Office. What steps are being taken
to encourage institutions to make use of such techniques, so that
the full scope for savings in this area can be realised?
(Professor Fender) Again, the methods through
which the Funding Council can encourage that are through making
sure that advice is available and we do intend to give advice
about that in the coming year. Also, we can make sure that other
people's advice is available to the sector and this comes from
the Treasury, from the National Audit Office itself where it is
appropriate, it comes from external sources, it comes from the
sector itself and indeed from the Funding Council. There is quite
a lot of advice available here. Value engineering is a formal
way of looking at the early stages of design through to the point
where you can hand over to construction. It is relatively recent.
We have to remember that in formal terms it is relatively recent.
The National Audit Office was looking at projects, the earliest
of which started in 1991. For many the formative stage was now
four or five years ago. Probably there has been an increase in
more formal methods of assessment but that is not to say that
there were not quite a lot of challenges, debates, attempts to
find the most economical way and the best value in these projects.
5. Let us look at something more conventional
then. Paragraphs 3.21 and 3.26 of the report describe weaknesses
in procurement procedures, including failures to meet the requirements
of European Community competition directives. What action are
you taking to ensure that all institutions are aware of the requirements
of such directives and to monitor institutions' compliance with
such legislation and indeed with accepted best practice, which
is a relatively common sense activity?
(Professor Fender) I would expect all institutions
to follow European practice. In one of the instances here it was
started before the European practice was confirmed and in another
the first part of the project met the European rules but unfortunately
the second part did not. It certainly was a failure. I certainly
would not expect institutions not to comply with those rules.
6. Just as an aside, one of the impressions
one gets in this is that sometimes there are lots of skills inside
the institutions we are talking about which are perhaps not always
used to the best advantage. Perhaps we will come back to that
again. My next question relates to paragraph 3.35. How are institutions
able to assess the value for money achieved from their building
projects if they do not evaluate the extent to which individual
projects have met their objectives?
(Professor Fender) Certainly I would expect projects
to be evaluated but the evaluation against objectives is certainly
not going to be done instantly. These are buildings which have
been constructed with a long life, with financial targets, with
targets with respect to staff and students and it certainly will
take a while before they are able to be properly evaluated. In
one or two instances where the financial targets are relatively
simple the progress can be seen quite quickly.
7. Paragraphs 4.5 and 4.6 raise a really
rather important issue. They describe how some of the institutions
visited by the National Audit Office had failed to make adequate
arrangements for handling potential conflicts of interests. What
have you done to ensure that all institutions are aware of the
need to comply with the Committee of University Chairmen's guidance
on the proper handling of potential conflicts of interest? There
is an example of a failure of this sort highlighted in paragraph
4.5 itself.
(Professor Fender) The appropriate body in our
view for giving the proper advice, which is rather straightforward
in this case, is the Committee of University Chairmen. They issued
advice about three or four years' ago; they are currently revising
that advice and will issue it again this year. In practice more
than 90 per cent of universities do have a register of interests
and in nearly every case the interest, if there is an interest,
is identified at the meeting. What subsequently happens is that
often the member concerned, the governor concerned, will leave,
in other cases they will remain silent. The evidence is that now
these registers of interests have been widely adopted by the sector.
8. I am sure we will come back to that one;
if others do not, I will at the end. A number of examples in the
report suggest that good practice drawn from some institutions
in the sector and more widely is not being shared with other institutions.
What more can you do to ensure that experience is shared more
widely in future?
(Professor Fender) Which particular part of practice
were you referring to?
9. Perhaps the C&AG would like to come
in on this one and outline some of the examples.
(Sir John Bourn) The major theme and thrust of
the report did turn around the assessment of the case for the
maintenance of the existing quantities of space and the management
and analysis of proposals for new accommodation. In essence our
view was that while Professor Fender is right to say that the
universities have a lot of very clever people in them and the
discussions do no doubt cover the full range of matters, in questions
of the use of space and the analysis of proposals for building
projects and the evaluation of those projects, some more determinate
framework can often be extremely valuable. Our general belief
was that this had not been collected together and focussed sufficiently,
immediately and directly on project planning and implementation.
The idea of spreading good practice was to see that those institutions,
and of course there were many who were doing it extremely well,
were catalogued, were passed on to other colleagues in the business
so that all could learn from the best. That is really what this
report is essentially about.
(Professor Fender) Quite a lot has happened since
this report and certainly even more since these projects were
started. First of all, even in terms of the old advice we gave
on appraisal, which was issued in November 1993, in fact seven
of these projects had been started before that advice was issued.
I am taking seven out of 12; I am including those where there
were two major phases. In terms of procurement, in terms of construction,
the CVCP issued advice in January 1997 with the support of other
bodies and going further back in construction there was the Latham
advice in 1994. In terms of the post- implementation review, there
is some reference to that in the green book which we will scoop
up and issue, probably in the summer of this year, so that there
is advice about how to assess the success of a project. Generally
speaking there is advice going out, we are giving that advice
as soon as it is sensibly available to review it and a lot has
come out since these projects were begun or began to mature. Then
we follow that up. We follow it up by a series of seminars and
as we develop a regional structure as a funding council we will
tend to do that more regionally. For example, on the space management
the report produced by the NAO on the Welsh experience, we ran
four seminars promoting the NAO good guidance document. We want
to and will as soon as we can this year make all this advice available
on the web. Apparently there are some technical difficulties about
getting the NAO report and maybe it is a question of the Stationery
Office wanting their £9.50 or whatever it is. We do hope
that advice from whatever source can be made available to institutions
that way because this is generally advice which we want to spread
quite widely. It is not just the head of the institution who hands
on a copy, even if they buy a few copies. We want to really make
sure that the good practice, particularly about appraisals at
the beginning of a project, even discussions about how it can
best be managed, I want to see that disseminated quite widely
throughout a university or college.
10. A number of your answers to me have
been of the nature of "We may not have fulfilled formal requirement
but informally we have met some degree of challenge process"
or whatever, "We have been careful". Do you accept that
actually not following the formal procedures makes it much more
difficult both to learn the lessons in the first place and then
transmit them and control them in the second place?
(Professor Fender) I agree in a world which is
becoming more explicit, we expect more things to be written down.
We looked at that for clarification and that is probably a sensible
reaction in many ways to a more complicated world. We should not
underestimate the value of verbal and oral exchanges as well as
written ones.
Maria Eagle
11. Do you accept that your predecessor,
the University Funding Council, had a poor record in respect of
investment appraisals on major works projects?
(Professor Fender) I do not accept that. We have
given advice out on timely occasions.
12. Your predecessor, the University Funding
Council, which had this role before your own organisation, were
rather known for having a poor record of investment appraisal,
were they not?
(Professor Fender) That is not information which
is easily available to me. You may have your sources but I do
not have that general information.
13. You do not know whether that is the
case or not. You are not aware of that. May I ask the Treasury
whether or not the predecessor body had a bit of a reputation
of not following Treasury guidelines when it came to things like
investment appraisals on major works?
(Mr Martin) I am afraid I do not have any information
on that with me. I should like to clarify this point about how
closely they are to follow Treasury guidelines. Certainly I would
hope that the institutions in this sector would have available
to them guidance which followed the techniques which are set out
in the Treasury guidance. I would actually suggest that, given
they are a particular type of institution, what is needed is tailor-made
guidance which is going to apply to the particular types of investment
and particular situations of the institutions in the sector.
(Professor Fender) May I come in and confirm that?
We see our role as taking that document, as we did the 1991 document
and then in 1993, producing something which is user friendly to
the sector, which is much more likely to be read and understood
and used by the sector. We shall do the same again for the 1997
document and issue it this year.
14. You do accept then the importance of
doing that.
(Professor Fender) I do.
15. Your guidance should have been published
by now, is that right?
(Professor Fender) Which guidance?
16. Your guidance on option appraisals and
how institutions should deal with them?
(Professor Fender) No, I think it will be sensibly
published this year.
17. It will be published this year.
(Professor Fender) Yes. May I just explain? We
do not tell institutions what to do. We believe that high autonomy
and high accountability go together. Therefore when we are in
the process of issuing guidance, we share the guidance in draft
form with institutions. We get as much involvement of institutions
before wrapping up the guidance in a formal way. I believe that
is the best approach. You do not tell people what to do in the
modern world. You try to engage them, you try to get them in the
debate and you try to get them to discuss what is good practice.
That is what we do.
18. Do you accept though that you do have
a role to try to promote best practice?
(Professor Fender) Of course.
19. You are there to oversee proper value
for money and in some of these projects you are just spending
millions of pounds, are you not? You do have a role in that field.
(Professor Fender) I have not suggested otherwise.
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