Examination of Witnesses (Questions 40 - 59)
MONDAY 2 MARCH 1998
MR ROBIN
MOUNTFIELD, CB and MR
MICHAEL HERRON
40. And you did become much more aware of
the state of the business from September 1995. In that month there
was established the Project Management Team, was there not?
(Mr Mountfield) Yes.
41. Were you on that?
(Mr Mountfield) No, I was not.
42. Your colleague, Mr Herron, was he on
it?
(Mr Mountfield) Yes.
43. And he reports to you?
(Mr Mountfield) He reported at that stage through
the Head of the Agencies privatisation team, a Grade 3 official
at that time who was also handling the sale of three other OPS
agencies.
44. I am sure everybody was very busy. Given
that the Project Management Team were meeting on a monthly basis
and there was a Working Party meeting at least fortnightly that
had players from your Department, from HMSO, from all your financial
advisers, from all your legal advisers, did it not become apparent
very quickly, Mr Herron, that the Controller in charge of the
restructuring and in control of HMSO was incompetent?
(Mr Herron) The groups that you referred to met
as you said and that process started in October 1995. The decision
to go ahead was at the end of September. We met frequently. The
first task of those groups was to prepare the process of privatisation,
of sale, the timetable, the work that would have to be accomplished.
The first meetings of the working group where we actually visit
the business and have detailed discussions with the business are
focussed in the first place on preparing a description of the
business and through the description of the business then getting
into the detail of the audited accounts that exist up to that
point.
45. How long would that process take?
(Mr Herron) That process took us through into
about December time which was also when we appointed the Long
Form reporting accountants. We were aware at that stage that there
was certain information which HMSO was having difficulty in producing.
That of itself was not necessarily a cause for concern because
our experience in previous situations of this kind was that the
demands of bidders who are used to information being presented
in a particular way that commercial companies routinely drive
forward were not always easily matched by the demands of the agency
or trading fund status. Once we did discover difficulties we tried
to investigate them.
46. At what stage did you first become seriously
concerned as a member of that Project Management Team?
(Mr Herron) Serious concern would have been in
the January/February period of 1996. Before then-I would not put
it as a serious concern-we were being inconvenienced by the absence
of certain data. We were having to put more effort in and it is
at that point we became aware that the original budgets for the
programme simply would not be sufficient because everyone was
having to do more work than would have been the case had it been
a straightforward sale of a business that was easily presented
to the bidders.
47. It soon becomes apparent when you walk
into a business and start getting messed about that there are
problems, does it not, but your serious concern began in January/February
1996. You had been involved from September and it took three months
to get everything together and get everything going.
(Mr Herron) We had been involved through October,
November, December.
48. So that would have been three monthly
meetings of the Project Management Team and it would have been
six or more meetings of the working party. By that stage you are
starting to come to a conclusion about the competence of senior
management, are you not, in an organisation like this, particularly
when they have failed to produce the figures that you need?
(Mr Herron) Our main concern at that stage was
to produce an Information Memorandum which accurately reflected
the business and which would allow us to ascertain that there
was sufficient interest for the sale to proceed.
49. Did you report back to your seniors
the fact that you thought the Controller was not in control of
his business?
(Mr Mountfield) No, I do not think that was their
function. The ministers had decided in July 1995 to appoint the
deputy chief executive as acting chief executive because they
judged that at that time --
50. Is this the man who was responsible
for the restructuring?
(Mr Mountfield) No, it was not, it was the man
who was appointed in 1995. The restructuring began the previous
year.
51. But it was not stopped, was it, it was
continuing?
(Mr Mountfield) It was not stopped because at
that stage the formal restructuring to new responsibilities was
virtually complete. I think I am right in saying that in January
1996 the final part of the devolution was already complete. If
I may say so, I do not agree that the decision to proceed with
that restructuring in 1994 was necessarily wrong.
52. It obviously became apparent very quickly
in my view, looking at this Report, that it was implemented in
utter chaos and did nothing but cause the business to grind to
a complete halt. I would have thought that you would have noticed
that when you first went in. I find it interesting, Mr Herron,
that you say you were seriously concerned in January or February.
Did you Report that concern to Mr Mountfield or up through the
structures of your accountability?
(Mr Herron) Yes. We were all aware of the difficulties
that we were facing and the difficulties we were going to face.
53. Mr Mountfield, when did you first hear
of that serious concern?
(Mr Mountfield) At that time.
54. Why did the Information Memorandum,
which went out in March of that year, continue when the Information
Memorandum turned out to be so misleading? It actually ended up
completely sabotaging the sale and meaning that instead of making
money on the sale you ended up with, as Mr Clifton-Brown said,
£200,000(?) in proceeds, but if one takes account of the
liabilities perhaps it is about a £1.8 million loss.
(Mr Mountfield) I do not accept that arithmetic.
That is rather like saying that if one sells a house for £54,000
but has a mortgage of £50,000 one has only sold the house
for £4,000.
55. You gave £3.8 million straight
back to the purchasers.
(Mr Mountfield) That was part of a --
56. The business had ground to a halt so
completely that it could not conveniently --
(Mr Mountfield) That is not at all the position.
The £3.8 million was a quite separate transaction which I
am happy to describe if that is helpful.
57. I want you to come back to this point
of the Information Memorandum which went out on 26 March and which
painted a completely misleading picture at that time after you
became aware, by your own admission, of the serious concerns that
you had about the business. Why was not the sale stopped at that
time?
(Mr Mountfield) The Information Memorandum, first
of all, quite explicitly said that these were the management's
forecasts. Those forecasts had already been reduced from the business
plan.
58. That was your get out, was it, "These
are not our forecasts, it is the management's forecasts"?
(Mr Mountfield) Indeed. It would be a very strange
Information Memorandum which had not put that forward since the
management have an obligation to do so.
59. But you are the vendor, Mr Mountfield.
(Mr Mountfield) Indeed, and my obligation at that
point was to establish a good field of potential purchasers. It
clearly would have been quite wrong for us to have put out figures
which at that point we believed were substantially too optimistic.
We did not do so at that point.
| 
