Examination of witnesses (Questions 1
- 19)
WEDNESDAY 4 MARCH 1998
PROFESSOR JOHN
KREBS, MR
COLIN READ
and MR JOHN
HANSFORD
Chairman
1. This afternoon we welcome Professor John
Krebs, chief executive and accounting officer of the Natural Environment
Research Council. We are considering the Comptroller & Auditor
General's Report on the construction of the Southampton Oceanography
Centre. Good afternoon, Professor Krebs, perhaps I could start
by asking you to introduce your colleagues to the members of the
Committee?
(Professor Krebs) Thank you, Chairman. On my left
is Mr Colin Read, who is the Finance Director of NERC. On my right
is Mr John Hansford, who is Director of Personnel and Estates.
2. Thank you very much. I understand this
is your first visit to this Committee, so we work pretty closely
to the C&AG's document. I will start with a question which
arises from Figure 5 in the document. Despite your cost cutting
initiatives, the cost of the Southampton Oceanography Centre increased.
Why did this happen?
(Professor Krebs) Chairman, the Figure to which
you refer on page 17 shows the process from the very beginning
of the development of the brief. At the very start the brief was
developed by consulting the users and that led to an ambitious
aspiration and an initial estimate, which is shown in the top
left hand corner of January 1990. Following that, there was a
period of progressive cutting-back on the aspiration of the users
which ended up with an agreed tender shown in the bottom left
in November 1992 of £29 million. So the reduction really
was from a wish list to a feasible and realistic project which
was agreed as the final specification for construction. In terms
of working from that agreed tender, the overall project including
the construction of £29 million had a value of £48.9
million, the overall project, and as of today the project has
reached a sum of £49.6 million, so an over-run of £0.7
million or 1.4 per cent.
3. Others will no doubt come back to that.
Let's move on to paragraph 3.4 which tells us that construction
of the building started 15 months later than planned. Why was
there such a long delay in the start of the construction?
(Professor Krebs) There were really three factors
which contributed to that, Chairman. First of all there was uncertainty
about the financial situation. As you will be aware from having
read the Report, there was a coming together of funds from NERC,
which came through the Science Vote, and from Southampton University,
coming through the Funding Council, and it took a while to put
that together. That was part of the contribution. There was also
work on developing the specification to which we have already
alluded to some extent in talking about Figure 5, and that took
a while. Then there was also a period associated with that of
making the specification fit with the budget, so there was a period
of cutting-back which again we have described in Figure 5. So
there was a concatenation of those three events which led to the
long delay. So refining specification, uncertainty about the allocation
of money to NERC, to Southampton University, and reducing the
budget from the initial wish list of the users down to a realistic
sum.
4. I see from paragraph 4.22 your consultants'
fees doubled from £4.3 million to £8.6 million. I suspect
we will re-visit part of that answer, but why did you let this
happen?
(Professor Krebs) This is certainly not something
which would happen today, and this came about in large part through
the extension of the period of development of the brief, and then
also in addition partly through the extension of the construction
period. It is possible my colleague, Mr Read, may wish to add
something to that.
(Mr Read) I think, Chairman, the accounting officer
has summed that up quite well, to the extent the increase in the
fees is largely due to the fact the design period was extended
by 15 months and matters about which we have already spoken.
5. Going back to paragraph 2.22, it says
that the design team presented the project board with proposals
based on a single concept. Why did you not ask for alternatives?
Might that not have simplified the process?
(Professor Krebs) I think if one were doing it
today, one would look at alternatives. However, the process of
developing the design which the design team presented to the project
board had involved considerable iteration and discussion with
the users, the people who were going to work in the centre, so
although it arrived as a single concept it had been derived through
an iterative process.
6. That rather brings me to what I think
is a rather important question. Paragraph 5.5 says that the Council's
normal practice was to take a collective approach to project management.
Why did you not follow the Treasury recommended practice and appoint
a professional project manager to deliver the project on time
and within project?
(Professor Krebs) Clearly today, if we were initiating
(and I can give you some examples of projects we are involved
with at the moment) we would appoint an independent project manager.
At the time, looking back into the late 1980s, the accepted best
practice was evolving quite rapidly and it could be argued that
NERC should have looked ahead to the way best practice was developing
rather than looking back to what had been best practice earlier
on in Government guidance.
7. Before we pass on from that, can I ask
the Treasury a question? Your guidance was extant in the late
1980s, at the beginning of this project, was it?
(Mr Martin) If we were to be absolutely accurate,
I could not point to a piece of Treasury guidance in the late
1980s which was specifically about the appointment of project
managers. That partly reflects the fact that in the 1980s the
bulk of projects within Government were done by the Property Services
Agency, and their internal guidance and indeed their practice
would be for the appointment of project managers. In the late
1980s, the Treasury's concern was rather more about the role of
the project sponsor. The problems we had identified in managing
projects were that the client, so to speak, was not getting his
act together in dealing with the project manager which, as I say,
typically would come from the Property Services Agency in that
period. I think, though, it would be true to say, as reflected
in the way the Property Services Agency worked, best practice
would be for the appointment of a project manager.
8. Certainly that was evident to anybody
in the commercial centre at this time.
(Mr Martin) Indeed.
9. What I think the Committee would find
useful is a note on what, if any, advice was available up until
January 1990, the start of the project——
(Mr Martin) Specifically on project managers,
Chairman?
10. Yes, on project management advice.[1]
(Mr Martin) Certainly.
(Professor Krebs) Chairman, may I add one more
point? The Council at that time, in the late 1980s, had undertaken
other projects in using the collective approach which had been
highly successful, so there was a history of successful management
of projects in this way which also may have influenced the Council's
decision.
11. You say that but according to my note
here no less than eight reviews advised the Council against your
collective management approach.
(Professor Krebs) I agree. That was starting from
1991.
12. I see. Let's go on. Paragraph 5.12 says
that because there was no clear allocation of responsibilities
between your consultants there were problems with the management
of the contract. Why did you let this happen?
(Professor Krebs) Again, this is an area where
our current guidelines would take a slightly different approach.
In fact, we would appoint an independent project manager with
clear responsibilities for project management. I think that the
historical development of this led to the view in NERC that the
principal responsibility for management project lay with the consultant
team. Perhaps Mr Hansford would like to add to that.
13. Would you like to, Mr Hansford?
(Mr Hansford) Yes, I can confirm that. I think
what we would accept is that there were weaknesses in the way
that the allocation of responsibilities was set out at that time.
That is well recognised but I think we have learned that lesson
very clearly now and our procedures, which I hope we will have
a chance to talk about a little later on about how they have evolved,
have fully taken on board the need for clear and concise allocation
of responsibilities.
14. Others will return to a number of these
questions as we carry on. My last question before I open it up
for the Committee, I see from paragraph 4.2 of the Report that
you have not settled the final account with Wimpey. When do you
expect to resolve this expensive dispute?
(Professor Krebs) Chairman, the current situation
is that the building is complete. As I said a few minutes ago,
there is an overspend of £0.7 million. It may look slightly
different in figure 10 where it seems to show a slightly bigger
figure. Do not forget that in interpreting Figure 10 Footnote
4, we deducted £2 million in liquidated damages which we
still hold so the current figure is 49.6 not 51.6. As far as we
are concerned in NERC our position is that that is the final cost
of the project. At the moment there is a dispute between Wimpey
and their subcontractor Matthew Hall over the costs of the M&E
part of the building and we watch with interest the development
of that dispute between Matthew Hall and Wimpey. As far as we
are concerned the final figure has now been determined and there
is no further action that we are taking ourselves other than I
have employed a legal team of advisors who have prepared a very
careful brief should there at a future date be some approach by
Wimpey. That is not in our hands.
Chairman: Again, others
may come back on that. Let us open the questioning up. Maria Eagle?
Maria Eagle
15. Good afternoon, Professor Krebs. I wonder
whether or not you could just clarify some points that have arisen
in my mind out of the Chairman's opening questions and your answers.
You said on a number of occasions "if we were doing it now
we would doing it differently". What has changed between
when you were doing this and now that has made you introduce some
of your answers with those remarks?
(Professor Krebs) What has changed is that NERC
has as a result of this project and other projects learned a number
of things about management of large capital projects. We have
issued new guidelines which in fact match very well with many
of the recommendations in the NAO Report. We commissioned our
own post-project evaluation of the Southampton Oceanography Centre
project which again provided us with some additional lessons.
The reason we are doing things differently now is because of acquiring
experience.
16. There is nothing like getting your fingers
burned to learn to stay a bit further away from the fire. You
have learned some expensive lessons, have you not? According to
the NAO Report the overrun on this project could run to £20
million. You have spent £5 million under other budget heads.
You could be facing additional costs if Wimpey do send that writ
of another £15 million. That is a set of expensive lessons,
is it not?
(Professor Krebs) I think we should stick to the
actual facts.
17. Do you dispute what the NAO have said
in their Report in respect of these figures?
(Professor Krebs) No, I absolutely agree with
Figure 10 which shows that the current overspend is £0.7
million and our position is and remains that any further overspend
has no credibility.
18. Do you accept that you have spent £5
million under other budget heads which is related to this project?
(Professor Krebs) That was not part of the original
bill. You are referring to Figure 11. The staff relocation costs
were always treated as a separate item.
19. Would the staff have been relocated
if you had not built this centre?
(Professor Krebs) That was always considered to
be a separate budgeting item.
1 Note by Witness: A number of guidances on works projects
were issued by the Treasury's then Central Unit on Purchasing
prior to 1990, including guidances on project sponsorship and
the selection and appointment of works consultants. These provided
guidance on project management but not on the project manager's
detailed, day-to-day management responsibilities. This approach
reflected the fact that the primary concern, following studies
of works projects in the mid-1980's, was to improve departments'
performance from the project "owner" or "sponsor"
perspective. To illustrate this approach, a section of CUP guidance
No 8 (Project Sponsorship: Role of Project Sponsor and Relationship
with the PSA", November 1988) included among the project
sponsor's responsibilities to "commission those professional
services required to implement the project. Particularly for the
management of the detailed design, procurement and construction
phases of the project, obtain the services of a suitable project
manager (and staff as necessary). In conjunction with the project
manager ensure that these various groups are welded into a team
motivated to meeting the success criteria of the project". Back
|
