Examination of Witnesses (Questions 20
- 39)
MONDAY 16 FEBRUARY 1998
PROFESSOR B FENDER
20. Do you have any existing guidance which
is already out there with the institutions in respect of option
appraisal for major projects?
(Professor Fender) No, is the simple answer to
that[1].
21. When did you take over from the University
Funding Council? When were you formed as an organisation?
(Professor Fender) In 1992.
22. In 1992 and we are now in 1998 and you
have not put out any guidance, despite this plethora of building
activity which has been going on in the sector and despite your
role as looking after value for money. Do you not think that is
a bit of an omission?
(Professor Fender) Could we go back a step?
23. Can you tell me why there is no guidance
out there? You have been here since 1992.
(Professor Fender) The option appraisal goes on
all the time. What you are asking about is whether formal advice
is given to institutions. Universities are perfectly well able,
as autonomous bodies, to examine their projects, to use them.
If you take the National Audit Office book for example, there
is a page of photographs of major projects--
24. Never mind the photographs, I have a
limited amount of time.
(Professor Fender) All of those projects I personally,
though not specifically in this context, have been and visited.
I have talked to the staff, talked to the students who are using
those, and measured on the ground their satisfaction.
Chairman: Order, order, Professor
Fender, could you please keep your answers brief and to the point
of the question put.
Maria Eagle
25. I have asked you whether you can tell
me why there is no guidance on option appraisal to institutions
already issued by your organisation. You have had over five years
to produce it.
(Professor Fender) This is an area where there
is not a lot of formal guidance available from other sources.
As you can see from the previous list I gave you, we have regularly
brought out advice and followed it up.
26. I am concerned about option appraisal
specifically. We are talking about projects which are spending
millions of pounds of money and which, if they go wrong, may put
the existence of some of these institutions at risk. Despite the
fact that only some of the money involved is money granted directly
to the institutions and a lot of it is raised privately, the fact
that it might put the institutions at risk if these projects do
not work would, I would have thought, been a matter of great concern
to you and it certainly is to this Committee. You have not answered
my question but I should like to move on and refer you to page
22, paragraph 2.21. This says, "Only one of the institutions
visited by the National Audit Office had established a requirement
to undertake option appraisal as part of their internal decision-making
processes". Does not that fact cry out for guidance to be
issued as soon as possible?
(Professor Fender) Yes; that is why we shall be
issuing it this year. This is another illustration of a case where
in the past there were informal procedures for assessing the value
of projects. People, after all, were using these buildings, passing
comment back within the organisation, within the university or
the college. Option appraisal has in practice gone on all the
time. What you are saying is: is not the time right to issue formal
guidelines about best practice?
27. I am not satisfied that option appraisal
has gone on in any scientific sensible way. If one calls thinking
it would be nice to have a new building and attract more students
to the institution an option appraisal, then perhaps it has gone
on. What I am concerned about is how well costs and procurement
of these buildings have been controlled. If you do not have information
to tell whether or not you need the building and what other options
could be used instead to achieve your objectives, then you are
not really in a position to be able to evaluate whether or not
you are doing the right thing by procuring the building. That
is my point. I fail to see why you do not understand that your
role as an external organisation looking at value for money ought
to be to promote good practice in these areas. You have told me
that in five years you have not managed to put out guidance in
an area which this report indicates the NAO find a matter of great
concern.
(Professor Fender) I think what I have indicated
is that throughout that period we have given guidance over most
of the range of building projects. We have given advice on the
appraisal process, we have supported advice given out by the sector
in terms of procurement and construction. What will now be done
is to pick up the Treasury's guidance, published itself only last
year, and turn it into a form which will be more easily assimilated
by the sector.
28. I still think it is a pity you had not
already done that. Can we turn to page 60 of the report where
we are going to have a look at some of the average costs of various
elements of procuring these buildings? If we look at Table 5,
average unit cost of projects by type in pounds per metre squared,
we can see that some of these costs are quite considerable. In
respect, for example, of teaching-one assumes that is classroom
cost-it is £1,290 per metre squared. I happen to have with
me some costs per metre squared in the further education sector
of new buildings and the equivalent cost is £750 per metre
squared. Can you explain to me why it is that in the higher education
sector those costs are almost double?
(Professor Fender) It depends very much on what
kind of accommodation is being offered, does it not?[2]
29. This is an average unit cost in Table
5. It is the average over the whole sector in respect of all the
buildings and the average cost in the further education sector
is £750 per metre squared,
which is significantly less, is it not?
(Professor Fender) Yes, but there is no evidence
in the National Audit Office report that procedures in terms of
evaluation of the project, the monitoring of progress, were in
any way unsatisfactory.
30. I disagree with you. I think the report
is replete with examples of sloppiness in respect of appraising
options, of decision making, of procuring and ensuring that buildings
are delivered and handed over on time and to appropriate costs.
One of the results of that is this average higher cost in the
higher education sector than in the further education sector.
Does that not concern you?
(Professor Fender) Broadly on cost and on time
was the finding of the NAO report. I really cannot compare one
set of figures, which after all have been subject to a series
of processes, of purchase, quantity surveyor advice, expert opinions
being brought in from the building sector, challenged by governors,
often with appropriate experience, all those processes have been
followed. If you are dealing with differences between HE and FE,
you are very probably dealing with differences of specification.
31. If we turn to the executive summary
of the report at the beginning, and page 3 on project implementation,
first of all there are serious complaints and comments in the
report about option appraisal and I have gone through my views
about that, but in respect of project implementation, paragraph
10 indicates that often the institutions did not really consider
how best to procure in order to meet their needs, they had a somewhat
old fashioned approach in the sense that they were not using new
techniques such as value engineering which the Chairman mentioned
earlier. If you turn to paragraph 13 it says, "Satisfactory
arrangements" were made here and there; satisfactory. It
is like getting a C at school, is it not? An average mark; C;
could do better. Is it not your job to make sure these institutions
do do better?
(Professor Fender) It is my job to help institutions
improve their performance, certainly.
32. Are you satisfied you are carrying that
out?
(Professor Fender) Yes, I am. May I explain how
we do that?
33. Yes, I should love to hear that.
(Professor Fender) First of all, I always tend
to think of a quality hierarchy and by that I mean that you look
at what your goal is, which is to improve, to improve every aspect.
Yes, I want better value, I want a better programme of teaching
and research. There is no doubt that what we are trying to do
is to improve performance. One of the ways of doing that is by
the audit process. We have a regular cycle of audit visits, we
examine management practice and governance and we are going to
introduce a five-year cycle which is dedicated specifically to
the estate management function. That is audit. Now assessment.
We have an opportunity to assess because we hand out small amounts
of capital money for specific projects. Currently we have a programme
on poor estates and laboratory refurbishment. The quality of the
bids which are coming in there is indeed, I am advised, better
than those which have come in for previous initiatives two or
three years back. Not only that, we can examine them, because
they will not get money unless they satisfy good standards of
practice in assessing the need, in appraising the options, in
procurement and in the way they are going to manage the project.
We have the means there of assessing the bids from nearly all
the sector, the poor estate initiative has attracted bids to a
value of about £580 million of which the Funding Council
would only pay at most £290 million and in fact can only
pay £35 million in the first year. Then we set standards.
The standards we set are those of good practice. We go round trying
to find good practice from the different sources I indicated before.
We encourage and work with others to produce that in a form which
will be taken up to set the standard. We are not content with
that. One of the things we should try to do is to look a little
bit further afield for good practice. It tends to be located in
this country: we should appropriately and carefully look to see
whether we cannot import some good practice from overseas.
34. May I just take you up on that? I happen
to have your bid document, your invitation to bid on the poor
estates initiative you have. What you have said in annex B of
that is that you may ask to see any or all of the following-an
option appraisal. Why do you not require an option appraisal?
Why do you just say you may ask for an option appraisal?
(Professor Fender) I tend to agree with you: we
do need to have option appraisals and we should be working towards
that.
35. Why did your invitation to bid not require
an option appraisal instead of saying you may ask for one?
(Professor Fender) What we do put in that document
is a request for institutions to give examples of their previous
achievement. In fact indirectly as part of the bidding process
we are expecting them to tell us how well they have done.
36. You have a very wide definition of option
appraisal. I want to take up one last point in respect of conflicts
of interests and paragraph 4.6 on page 48 sets out the case of
a governor who was a director of the construction company appointed
to undertake a major contract. There had been no records of him
making a declaration of interest or of him withdrawing from the
meeting. You said in reply to the Chairman that 90 per cent of
institutions have registers of interest. What are you doing about
the other 10 per cent?
(Professor Fender) We will, through the chairmen
of the university councils, be promoting again the recommendations
for good practice. In fact in the particular case to which you
are referring there is a report at least that the individual did
leave the meeting but that it was not recorded. I have no way
of knowing whether that is true or not.
37. That is just the point: you have no
way of knowing. That would be one way of summing up this entire
report: you have no way of knowing many things which you should
know.
(Professor Fender) No. In the particular case
the individual claims to have left the meeting; there is no reason
to dispute that claim, but it could easily not have been entered
in the register. Not all registers are perfectly kept.
Mr Leslie
38. My constituents are very worried about
how taxpayers' money is managed in quangos. You are a quango and
a lot of these higher education institutions are quangos as well.
You know what a quango is, do you not?
(Professor Fender) Yes. A higher education institution
is an autonomous body, well capable of managing its affairs independently.
I would not describe them as quangos.
39. You would not describe them as quangos.
(Professor Fender) I would not describe a higher
education institution as a quango.
1 Note by Witness: Guidance on reviewing the initial
assessment of options after a building has been completed (post-investment
appraisal) will be published in 1998. Guidance under option appraisal
before the letting of a contract was issued by the Council in
1993 and is being up-dated for issue later this year. Back
2
Note by Witness: I understand that the two figures have been prepared
on a different basis. Members should be aware that the FEFC guidance
figures of £750 sq.m. are based on the tender prices of building
a new straightforward executive type office without additions
such as lecture theatres and laboratories. It also excludes land
costs. The NAO survey of HE includes all costs, including major
refurbishments and all types of teaching space as areas used jointly
for teaching and research. Back
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