Examination of Witnesses (Questions 40
- 59)
MONDAY 16 FEBRUARY 1998
PROFESSOR B FENDER
40. You gave a quote earlier on which I
did not quite understand and maybe you could help explain it.
You said high autonomy and high accountability go together. What
did you mean by that? Maybe this is what you see as the difference
between higher education institutions and quangos. What did you
mean?
(Professor Fender) No, what I meant by that was
that the higher education sector in Britain is now a large sector,
a lot of institutions, educating 1.7 million people and doing
a lot of research. It is a diverse sector.
41. I realise that but how does their autonomy
in this sense help their accountability?
(Professor Fender) Because their autonomy is in
my view the best way of encouraging them to be independent, to
be resourceful, to be enterprising.
42. But not accountable.
(Professor Fender) I said, coupled with high accountability.
43. So they are separate things; they do
not necessarily lead on from one another.
(Professor Fender) They are separate things, yes.
44. That is interesting.
(Professor Fender) It is the job of the Funding
Council to help them express their accountability, which we do.
45. That is very important as well. I would
therefore have thought, following Maria Eagle's point to you,
that you would put down various requirements to a lot of these
institutions which come under your wing to make sure that they
are held accountable. It seems there are doubts that you are putting
down these requirements to them.
(Professor Fender) Ms Eagle has made a specific
point about option appraisal which is one of the ways of seeing
a project through.
46. May I put another one to you? The question
of loan finance. A lot of money is involved in a lot of these
projects; we are not just talking about the odd million here or
there, we are talking billions of pounds of taxpayers' money.
I am concerned that there is not enough competition encouraged
in obtaining this loan finance. Paragraph 2.27 states that in
two out of ten cases, which is quite a high proportion, the institutions
actually approached their existing bank and took the loan which
was offered to them straightaway rather than competitively searching
around for the best loan deal possible. Surely you should have
had some rules, requirements, in place as an umbrella organisation
to encourage and require competitiveness in obtaining loan finance?
(Professor Fender) You have to take account of
the fact of the changing nature of the way in which buildings
are constructed. I referred earlier to a tradition in which it
was natural to debate and discuss at considerable length any proposal
for a building within a university. Therefore we were using that
tradition. At the present time, or at the time when these projects
were started, the various ways of attracting finance were relatively
unknown, particularly to smaller institutions. There is a big
change. If you look at the figures in here, rather small amounts
of money now come from the Funding Council, from the Government,
large amounts from borrowing and from other private sources. That
is a change which has taken place quite quickly.
47. With that change you are going to require
competition.
(Professor Fender) Yes, we do recommend of course
that people ---
48. Recommend or require it.
(Professor Fender) We recommend. You can, if you
want to, have poor value for money by telling people what to do.
You will get a compliant organisation and there will be high accountability
and low autonomy. That is not, in my view, the best way to get
value for money.
49. You regard the autonomy aspect as more
important than the accountability aspect.
(Professor Fender) Yes, because it gives the institution
responsibility. The institution feels it is they who are doing
the project, as indeed they are. It is they who want to see it
through to the end and make sure it is a success.
50. Let me put another aspect of my worries
at least, trying humbly to hold you to account here, about the
fact that when these institutions embark on these projects they
have sometimes to pay quite considerable fees to consultants who
are working either on the management or design phase of various
different projects. The National Audit Office say that on average
consultants' fees can be about eight per cent of project cost
value but they can go up to 15 per cent of the total cost. Again
you do not set down any particular requirement or even significant
advice as to how these consultants' fees should be entered into.
The National Audit Office prefer fixed fees, set fees at the beginning,
whereas on most occasions in your institutions' cases, they are
as a percentage of the construction cost value. Would you not
have thought you should start moving towards the National Audit
Office requirement, suggestion, of fixed costs?
(Professor Fender) It depends on the circumstances,
does it not? If you are a manager you will try to get fixed costs.
I well remember when I was a vice-chancellor that was a pressing
need. I could not afford to have variable budgets, I needed to
know exactly what was going to come in the way of charges. Therefore
one will normally try to have fixed costs. The amount of work
will vary and in some cases it will not be quite known what was
required of a consultant and therefore there will have to be some
degree of variability. There are examples which the National Audit
Office gives of good practice, or an institution looking, for
example, for a service provided by consultants operating over
a period of five years, again after a competitive tender, rather
as one might employ a solicitor or other kinds of advice of that
sort.
51. In order to make sure that it is not
just satisfactory examples here and there but to get a good service
across the board, should you not be setting down more stringent
rules, for example requiring that consultants are competitively
appointed because you do not require that now?
(Professor Fender) We do always recommend that
value for money is tested by competition.
52. That is not quite how I read it in paragraph
3.21.
(Professor Fender) May I come back and remind
you that the universities and colleges are independent bodies,
they have a governing body. What we require is that they have
an audit committee, we require them to have internal auditors
and of course they have external auditors. These are the processes
going on like any other organisation which will be anxious to
deliver good value and good practice.
53. Given that you seem to assign much greater
weight to the importance of the autonomy of these institutions,
it is not unfair for people to question how accountable they are
and how good the decisions being made within them are.
(Professor Fender) Universities are very accountable
if you look through their processes.
54. Are they?
(Professor Fender) Yes; yes, they are.
55. If you say so. I will have to take your
word on that.
(Professor Fender) If you visit an institution
and ask them what the different kinds of accountability are that
they are subject to, you will come away feeling that they are
accountable.
56. The reason I say that is that there
are several examples throughout this report, I just do not have
time to go through them, which give me the suspicion that the
accountability is not in place, making sure that good decisions
are being made. There is the example on page 51, Example 23, where
the governors made a decision to hand over the day to day management
of the construction project to a series of external consultants
but in the matter of the variations of cost on the actual building,
in so much as sometimes if you are building a project costs can
vary from time to time, it seems as though they signed over all
matters relating to cost variation to these project managers,
effectively signing away all their controls over cost variations.
That was not a particularly good decision, was it? We would be
right to be worried about how well the governors were making the
decisions in that case, would we not?
(Professor Fender) Broadly, as the NAO report
says, the projects came in on time and on cost. Where there was
a variation there was a significant increase in the amount of
building which was provided and the specification of that building.
57. Will you not just recommend but also
require governing bodies not to sign over all aspects of cost
variation to project managers so that they can at least rein in
some of the costs if they themselves as governors see something
ballooning, escalating out of all proportion?
(Professor Fender) Of course I would not expect
an institution to hand over in that way.
58. But they are doing it.
(Professor Fender) No, what is said is that in
most cases there were satisfactory arrangements. I am not satisfied
with "satisfactory". I would like to see the best possible
practice, which is why we have the processes I have described
already for doing that. One of the big changes which is important
in terms of the general question of value for money and indeed
the option appraisal is the encouragement of strategies and estate
strategies. That is what the Council did in 1993: it required
institutions to produce a strategy. There is a difference between
requiring a strategy and requiring a particular and detailed process
which may not be applicable for a particular project.
Mr Leslie: I can certainly see that
letting them have great autonomy and competitively finding their
own best way of getting value for money is your philosophy. I
think though that there comes a time when umbrella organisations
such as yours, if they are to have any use, should actually look
at specifying detailed requirements, particularly with regard
to money management, as in this case. With respect, I would suggest
that you need to pay more attention to that.
Mr Clifton-Brown
59. The report shows us at the beginning
that there were 239 major building projects costing £1.6
billion out of a total annual expenditure of £8.9 billion
between 1993 and 1996. Given that substantial amount of public
money, we cannot, can we, be at all complacent about these institutions
obtaining best value for money in carrying out these projects?
(Professor Fender) Certainly not.
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