Examination of Witnesses (Questions 60
- 79)
MONDAY 16 FEBRUARY 1998
PROFESSOR B FENDER
60. You were in charge of HEFCE in 1996
when the guidelines were changed. I am referring to paragraph
2.3 on page 13. There was a financial memorandum giving the institutions
greater financial freedom in ordering these expensive projects.
Why was that done?
(Professor Fender) If you think about it, looking
at this number of projects and trying to follow those in comprehensive
detail, would be a mammoth task and almost certainly inefficient.
It is the same answer I gave before. You want to encourage institutions
to be independent, resourceful, innovative and with full regard
for money. It is almost laughable to believe that institutions
are not concerned about money. In the last reported year their
surplus was 0.7 per cent, balancing on a knife edge. They took
a cut in 1995-96 of 4.5 per cent or thereabouts in real terms.
They are extremely cost conscious, they have to be. It would be
nice to follow some of the advice which is given in the National
Audit Office report and think in terms of the whole-life project;
it would be very nice to contemplate investment up front. You
cannot sometimes do that, much as you would like to. You have
to take a shorter view because financial stability may not last
that long. There have been interventions by both governments which
have caused quite sharp changes in the potential financial position
of universities.
61. Given that rather long answer, the logic
to having changed these guidelines, more than guidelines, is that
your institution was not capable of overseeing these projects
satisfactorily.
(Professor Fender) No; I did not want to repeat
myself. I argued before that giving institutions the maximum amount
of autonomy, at the same time making sure there are mechanisms
for their accountability was the best way of delivering value
for money. Getting compliance through a series of rules and regulations
will not in my view deliver the best value.
62. In your view is there a satisfactory
overall policing role for your institution now to stop some of
the things outlined in this report happening in future?
(Professor Fender) Yes. I would expect the general
improvement of management in universities or for that matter elsewhere
in the sector to mean that if you were to re-run this you would
find a lot better position. I expect improvement all the time.
We are looking at decisions which were made several years ago
and therefore I expect to see a better performance. Introducing
that financial memorandum was one way of encouraging that. It
did put a requirement on institutions, if they were going to borrow
more than four per cent, to have to undergo a quite rigorous analysis
of the reasons for exceeding that four per cent limit.
63. I find that answer extraordinary because
on pages 40, British Airways in Example 16 have found that by
bringing in external consultants-and I am a chartered surveyor
and I am used to dealing with project managers and we used to
find people who were expert at project management across a range
of different projects-they could pick up individual pitfalls that
the individual institution, which these mostly are, who are not
used to dealing with these big financial property projects every
day of the week, could not. Project managers who are used to dealing
with this day in, day out, can often pick up some of the more
obvious pitfalls. I am surprised that your institution did not
feel that it had an overall policing role in all of these projects.
(Professor Fender) In fact in these projects experts
were largely brought in from outside to do the project management.
64. But there is no one body overseeing
the whole thing to make sure some of the more obvious pitfalls
are not being encountered.
(Professor Fender) There is in the sense that
although the Funding Council can only do certain things, I believe
the things it does are effective. First of all it can encourage
universities to have a strategy, to know where they are going,
to assess their decisions against that strategy and to revise
that strategy. We look for that strategy and that is one of our
high level indicators. Secondly were the processes of assessment
which come from an institution requiring to exceed a borrowing
level of four per cent or an institution coming to us for specific
sums of money for a particular project. Thirdly we have an audit
service. Those are three particular actions we take to make sure
and to encourage, apart from the publication of the advice I have
indicated, those are the actions we take to try to make sure that
institutions are delivering as well as they can. Remember there
are 3,000 governors for example in higher institution bodies.
They bring expertise, they have expert staff and they can go outside
for more expertise and consultants when they wish.
65. May I deal with one or two of the specific
shortcomings brought out in the report which seem to me serious?
On page 49, paragraph 4.8, it says, "None of the institutions
visited ... had formal regulations covering governor involvement
in capital projects". Surely this should be a requirement
that the governors should know exactly what their authority is?
How can you start on a complex financial project if you do not
know what your authority is for a start?
(Professor Fender) Governors do know of course
that they are responsible for approving the strategy of an institution
and for approving major projects and for assuring themselves over
monitoring those major projects. I am sure if I took those 3,000
governors and asked them they would understand their responsibility.
66. It is one thing understanding it: it
is another thing having it written down, particularly if something
goes wrong. Why is it not an absolute requirement that there is
this proper governor guidance?
(Professor Fender) You could produce a great big
pile of regulations this high.
67. We are dealing with public funds and
a substantial amount of public funds.
(Professor Fender) We are.
68. There is surely no room for complacency
in these areas.
(Professor Fender) None at all, but I am arguing,
and I think there is good evidence for it, that trying to run
things through a system of massive rules and regulations will
not deliver the best value for money.
69. But it might avoid some instances of
not obtaining best value for public money.
(Professor Fender) That is why we try to give
guidance. We encourage institutions to follow the guidance, we
promote seminars, we engage people in order that they may, of
their own volition, seek and want to deliver that value for money.
The evidence of higher education in the broader sense, four per
cent of the total expenditure of higher education here or thereabouts,
lots of evidence there to demonstrate their commitment to deliver
value for money, teaching, research and so on.
70. May I refer you to another shortcoming
in the report, paragraph 3.9 on page 32? "The National Audit
Office found that, for two of the projects examined, no formal
level of delegated authority had been set". Would you like
to be in charge of your organisation if you did not have proper
delegated authority from the Department for Education and Employment?
Surely you cannot operate unless you have delegated authority?
(Professor Fender) No, and those two institutions
now do have that appropriate delegated authority. In one case
the authority had been given to an expert, an outside consultant
they had used for a long time. Yes, they probably should have
had a formal restraint. They relied on his good judgement to look
after their interests. Formal delegation is necessary and would
be part of any advice I gave.
71. If the NAO can pick up these substantial
shortcomings, why is it that your own audit team cannot pick them
up?
(Professor Fender) If you examine any project
in some detail you will find things which you wish could be done
better. I do not believe any of these have affected the choice
of the proposal or indeed that there is any quantifiable improper
use or even less effective use of public money.
72. Do you not accept at all in any of the
examples given throughout this report, that the institutions involved,
with all the other examples, with all the shortcomings, could
not have obtained better value for money on some of these projects?
Because that is what your previous answer tends to imply, that
it was not.
(Professor Fender) No, I am saying that the NAO
report itself is valuable, it gives an indication of the way in
which institutions can improve, it will be one of the pieces of
information which we will promote and discuss and circulate to
the sector. I am certainly not being complacent. I am not saying
these have not happened. I am saying that with any major project,
if you go back and analyse it, you will find things you wish you
had done better. It is the advantage of hindsight.
73. There is not a huge number of these
projects: 239. Does your audit team audit every single one of
them?
(Professor Fender) No, it cannot, of course, and
it would not be desirable that it did. You have to look for general
indicators of good management, proper governance, and other indicators
that money has been well spent. I have given you the illustrations
of that. Nearly every institution will bid under the poor estates
project, many will bid under the laboratory refurbishment, quite
a lot come because for a period of time they need to borrow at
a level which requires more than four per cent of their income.
We do have opportunities to look at the practice in the sector
in some detail.
Mr Page
74. You have said you want to see the spread
of best practice. A number of times you have said that these autonomous
institutions are well able to administer projects. I should like
just to examine exactly how you see that working, obviously taking
examples from this particular report. May I ask you to go to page
40 and paragraph 3.26 where the NAO report says, "Although
there was much good practice to be found amongst the institutions
visited, some weaknesses were identified ... the absence of formal
tendering procedures to control the opening and recording of tenders".
What has been done to bring about the spread of best practice
regarding that particular complaint?
(Professor Fender) We have done a survey on absence
of formal tendering procedures [3]
and we believe that 98 per cent of institutions do have formal
tendering procedures. The exceptions are two very small colleges.
Of course we would expect formal tendering procedures: the evidence
is that nearly every institution has them.
75. Ninety-eight per cent have formal procedures
and just two per cent do not.
(Professor Fender) My information is that two
small colleges do not have tendering procedures; perhaps because
they are not buying very much.
76. The Comptroller and Auditor General
can see the question coming his way. Is this a figure with which
you concur?
(Ms Body) We looked at ten institutions and two
of those did not have formal tendering procedures.
77. Were they small, insignificant colleges
of no little importance or were they a little larger than that?
(Ms Body) They were relatively small institutions
but not of no importance.
78. In your sample of ten you managed to
get the two out of the 98 per cent.
(Ms Body) Yes, it would appear so.
79. That is indeed miraculous. I am most
impressed on that. In the paragraph below that it says, "Six
of the ten institutions visited ... had purchasing officers to
co-ordinate the purchase of the institution's goods and services
... The general view of the focus group of estates directors consulted
by the National Audit Office was that purchasing officers do not
have skills which readily transfer to the procurement of buildings
and related services".
(Professor Fender) Yes.
3 Note: See Evidence, Appendix 1, page 16 (PAC 209). Back
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