Examination of Witnesses (Questions 80 - 99)
MONDAY 2 MARCH 1998
MR ROBIN
MOUNTFIELD, CB and MR
MICHAEL HERRON
80. But the Government could have had a
much more interventionist approach in the management of the restructuring.
(Mr Mountfield) No doubt the Government could
have in the sense of ministers.
81. I would just like to look at some of
these late liabilities that you retained because I am very concerned
about all these problems that you are left with. You have already
referred to appendix 2 at the back of this Report. Can we just
go through a few of these because I must admit it tends to seem
to me to be a catalogue of symptoms of poor management throughout
the whole of HMSO, particularly perhaps in the years running up
to privatisation. Let us look at this, the Benefits Agency at
the top here, £436,000, "alleged failure to deliver
printed forms and related items to required standard". Why
was that?
(Mr Mountfield) I am afraid I do not know the
details of this, but I would be very surprised if any sale of
this kind of a complex business did not have at any one point
in time a number of outstanding disputes between suppliers and
customers.
82. One of nearly half a million pounds?
(Mr Mountfield) That one was in fact settled for
rather less; it was £400,000 in the end.
83. Still a large amount of money.
(Mr Mountfield) I am afraid I do not know the
detailed background.
84. What is all this business about industrial
injury and occupational disease? The liability you retain for
the employees is £614,000.
(Mr Mountfield) In the normal course of any business
employing several thousand people with a turnover of £350
million there are likely to be some on-going obligations to employees
which will not have crystallised at the point of sale. There are
two possibilities: one possibility is to sell that risk with the
business and the other one would be to retain the risk. Either
way there is going to be some cost to the public purse. That is
a judgement at a point in time of where that risk is most effectively
borne and borne most cheaply for the Exchequer. The judgement
was taken that we would have to pay, in effect, an excessive premium
to have those risks transferred to the private sector.
85. You have kept them all?
(Mr Mountfield) We have kept those.
86. Let us just go to the end of the page,
this Catherine Soultanovich Ltd hangover from the Uzbekistan deal.
That is still unresolved, is it?
(Mr Mountfield) No, that was settled out of court
for £39,000.
87. That is still a large commission. How
on earth have you managed to retain a liability for £142,000
for Connect Business Systems in relation to incorrect 12publication
of a notice in the London Gazette. Is that not a rather large
liability you have retained? Have you settled that one?
(Mr Mountfield) That has not been settled.
88. Why is there a figure of this amount?
(Mr Mountfield) Because that is an estimate which
was put on that liability. A number of these figures are, as the
column says, estimated values.
89. When we look at exposure to asbestos
here at Belfast you have retained a liability for that and yet
the building is in the private sector.
(Mr Mountfield) Yes because the liability arose
before the period of privatisation.
90. You effectively are taking on a lot
of problems that still exist in that building and yet it is a
privately-owned building?
(Mr Herron) I think there is a risk of misunderstanding
here. The claim which is there is in respect of claims by employees
for adverse effects on their health as a result of exposure prior
to the sale. We are not talking about any action that is taken
to improve the building or anything after sale. This is referring
to claims made by employees who were employees of the Civil Service
whilst they were still employees of the Civil Service and before
any transfer was effected. Clearly, in that situation the buyer
of the business would charge a very significant sum of money,
if they are prepared at all, to take on the risk that they would
have to meet the cost of any claim brought for those actions which
did not take place under their management and control. Does that
help clarify?
91. I understand. It seems the shadow of
the whole of the HMSO sale is going to linger around Government
for quite some time while the liabilities are retained. While
we are on the subject of staff and treatment of staff, you did
not really give the employees in the form of their trade union
representatives much information during the time of the sale,
did you, about for instance the Information Memorandum and business
plans? Why did you fail to give them an update of what was going
on in the sale process?
(Mr Mountfield) The NAO Report records that as
the view of the trade unions. If I could briefly outline some
of the things that were done either by ourselves or by HMSO management.
First of all, during the period of the commercialisation process
there was a monthly "Commercialisation News" issued
to HMSO staff. From the date of the privatisation decision onwards
there was a privatisation news section in the monthly staff news
which HMSO published. There were frequent notices on the HMSO
E-mail system, the office information system advising of the latest
privatisation news, including the text of Parliamentary debates,
minutes of Whitley Council meetings, all posted on the privatisation
section. There were face-to-face briefings with staff using briefing
notes provided for directors. There was a telephone hot line.
Senior management had regular meetings with HMSO trade unions.
The Chancellor of the Duchy visited Norwich as I did myself to
address senior staff. Trade unions had two meetings with Ministers,
three with the Vendor Unit. No requests for meetings were ever
turned down.
92. The employees are still not very happy.
When you told them there were going to be 500 or 600 redundancies
over the two-year period, it has turned out to be 1,000 redundancies
which is a lot more than they were originally told. Do you not
think that it is rather suspicious that something was held back
at the beginning?
(Mr Mountfield) I can well understand their suspicions,
of course, but I think we have to, or I have to address that from
the point of view of what was done at the time in good faith to
inform the staff and trade unions of what was likely to be the
implication of the sale consistent with Government policy of the
time. For example, we honoured TUPE.
93. Did you honour TUPE? If you fail to
give them sufficient information and it turns out that a lot more
were being sacked afterwards than was planned to be the case,
did you honour TUPE?
(Mr Mountfield) TUPE does not have any effect
on the number of people who were offered voluntary retirement
after the sale. Everybody who went into private ownership had
their severance terms preserved under the TUPE arrangements apart
from the few people who voluntarily took new contracts after privatisation.
Outside the terms of TUPE we required bidders to establish a pension
scheme for future service of at least equivalent value to the
Civil Service pension scheme and we made sure that staff had the
Information Memorandum, apart from a very few excisions-this is
described in the Unions' complaints as a very small amount of
the information memorandum-in fact they had virtually all of it
apart from some relatively minor disaggregated information about
the commercial position of individual customers.
94. My final point is going back to the
total that you were prepared to sell the whole business off for
of £47 million. You had a valuation done and the pessimistic
valuation you received from Coopers & Lybrand was £71
million. Is it not the case that you were really taking a stab
in the dark and guessing at these figures and there was no precision
involved at all at any point in the estimate and the ceiling which
you were trying to cap or the amount that you were prepared to
sell it for? Given that you have said Ministers recognised that
the sale would be at the lower price by selling sooner, which
Minister was that?
(Mr Mountfield) The Chancellor of the Duchy of
Lancaster.
95. Who was?
(Mr Mountfield) Mr Freeman, as he then was, and
the Deputy Prime Minister, Mr Heseltine, was also involved. On
the question of the £47 million, of course estimates of that
kind in the nature of the process could not be precise within
a narrow margin. That had to be related to indicative bids which
had been made at the same time of £25 million to £170
million. In other words, the indicative bids being made on the
same profit forecasts were producing a range even wider than the
floor price that Coopers established themselves.
96. You tell us that the final offers were
from £6 million to £86 million. I get the impression
you are picking numbers out of the air.
(Mr Mountfield) Indeed, it seems to me the principle
on which we work --
97. Picking numbers out of the air!
(Mr Mountfield) The value of the business is what
it will sell for in a properly conducted open market sale. My
contention is that the sale was properly conducted, we were professionally
advised, we established a wide field of bidders, we made sure
that it was open to a comprehensive, open due diligence process.
We took steps to keep as many bidders as possible in the field
until a late stage. At the end of that the answer was £54
million and that was more than the estimated value of retention
in the public sector. That satisfies, in my view, the requirement
to sell at a fair value.
98. If the people who bought it off you
choose to sell it on in the future, you do not have any profit
clawback?
(Mr Mountfield) I specified one particular case.
99. In real estate but in terms of resale
of the business there is no profit clawback, as can be the case
in other privatisations?
(Mr Herron) I am not aware of any guidance that
suggests in the overall estimate there should be a clawback of
that kind. One of the bids from Capita, which was in total almost
the same as the final bid from NPG, did include a degree of conditionality
for subsequent flotation.
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