House of Commons - Public Accounts

Select Committee on Public Accounts Forty-Fifth Report

DEPARTMENT OF THE ENVIRONMENT, TRANSPORT AND THE REGIONS: THE HOME ENERGY EFFICIENCY SCHEME

EAGA'S ADMINISTRATION OF THE SCHEME

32. Eaga are responsible for registering and appointing installers to do work under the Scheme in each area of the country; allocating funding and thus work to installers each quarter; processing and paying installers' claims; setting and monitoring standards for the quality of installers' work; and de-registering installers where necessary.[48]

33. There is a close relationship between Eaga, installers and NEA, the national energy charity which set up Eaga to run the Scheme. NEA, which campaigns for warmer homes, is closely linked to Scheme installers, who make up 51 per cent of their membership. 77 per cent of Scheme installers are members of NEA. Two of Eaga's board of eight non-executive directors are nominees of NEA. [49]

34. We asked Eaga to explain why they closely managed competition amongst installers, so that on average there were just five firms allowed to compete for appointment in each area of the country, and two competitors for each vacancy. Eaga told us that in the early years of the Scheme they had opened every vacancy to all installers. This had resulted in 20 or 30 applicants for each vacancy, which had an administrative overhead and which made it difficult to be open and transparent. Eaga told us they believed that their current arrangements complied with European standards and current best practice, which was to invite between two and seven applicants per vacancy.[50] Each area, for which Eaga normally appointed two or three installers, corresponded on average to the area covered by three local authorities.[51]

35. The National Audit Office found wide variation in the costs claimed by installers in 1996-97, even for similar properties in the same area, with many jobs charged at or near the grant maximum.[52] The Committee asked the Department to explain why there were differences of as much as £50 in the average cost of claims for draught-proofing a two bedroomed flat between different installers working in the same area, though the grant maximum for this work was £128.50 and the average cost nationally was £112.53. Eaga told us that some properties did not require a lot of work. In contrast, some of the most expensive cases were Edwardian and Victorian terraces, which were large and difficult to heat. Eaga's monitoring officers had concluded that generally these cases were good value for money because of the size of the property.[53]

36. We asked whether in some cases installers might be overstating the cost of the work. Eaga acknowledged that this might explain these cost variations, and they had periodically reviewed the profitability of installers to assess whether this was the case.[54] In 1995, when the position was last reviewed, they found that the Scheme had provided installers with improved cash flow, increased turnover and significant improvements in net profits, net asset values and directors' fees, particularly for those smaller firms where Scheme work accounts for a higher proportion of their business.[55]

37. We asked what Eaga did to ensure that two installers appointed in an area were not colluding to keep their prices artificially high. Eaga told us that there was a larger list of installers from which some were selected to compete, and thus pre-appointment price fixing was unlikely to happen. They also believed that in the commercial world cartels rarely operated for very long because someone would break the pricing agreement. The Department added that they had now changed the Scheme so that it was now possible to monitor more closely the prices installers were charging for individual items.[56]

38. In 1996-97 many installers' claims were at or near the grant maximum for each type of work.[57] Eaga told us that in many cases installers' costs were above the grant maximum, and since grant recipients were often unable to meet the additional cost, it was met through a hardship fund. In some cases installers operated such hardship funds themselves.[58] We asked what controls Eaga had in place to ensure that installers were not claiming the grant maximum regardless of the work done, especially since there were few installers and limited competition in an area. Eaga told us that they inspected five per cent of all the work that was done, and in cases where their inspectors viewed costs as unreasonable they had taken action.[59]

39. Eaga had told the National Audit Office that it was possible that they did not have the legal power to reduce or amend installers' claims on grounds of cost, because they were not a party to the contract between householder and installer.[60] Eaga told us that they had always sought to challenge costs which were unreasonable. This practice had never been challenged in the courts, so there was no definitive statement that they had such a power. The position had been made clearer in the current version of the Scheme regulations, which provided that Eaga should not pay unless certain circumstances were met and gave Eaga explicit powers to control installers.[61] However, the Department told us that in drawing up new regulations they would make this point more explicit.[62]

40. Until the changes in July 1997 installers' prices had not been a primary determinant when appointing installers to work under the Scheme.[63] We asked why it was six years before the Department asked for greater attention to be given to price. The Department told us that they had emphasised quality as a key part of the Scheme because they had been conscious that they were inviting installers into the homes of potentially vulnerable people. As the Scheme had matured, the Department had made a judgement during 1995-96 that the time had come to place greater emphasis on price.[64] The quality of work done by installers had improved, by 1996-97 achieving an overall 99 per cent compliance with Eaga's quality criteria.[65] Eaga added that when the Scheme was started in 1990 the insulation industry did not have a good reputation, and it had taken time to improve the quality of customer care, service, quality of work and materials. It had taken four or five years to achieve sufficient in terms of quality standards; Eaga did not want to send anyone into a vulnerable client's home who they could not be sure would deal with the client in the right way.[66]

41. The Department told us that after the changes in July 1997, which had placed more emphasis on price in decisions on appointment, the variations between installer prices had contracted quite considerably. The issue was whether to take this process still further. The C&AG had recommended that they should do so, and the Department could work with this recommendation.[67] We also asked what scope there was for price to be a key factor in allocating funds to installers once appointed, rather than the current system of allocating funding to installers based on their record in spending previous allocations. The Department confirmed that this was the direction in which Eaga would be moving.[68] The National Audit Office had also found that local authorities claimed that they could get work done more cheaply than under the Scheme, by use of local competitive tendering, but the Department had not yet investigated these claims.[69]

42. Some installers have complained about the fairness and transparency of Eaga's procedures for selecting installers to do work under the Scheme. We asked Eaga what they would be doing to improve their procedures and to ensure that they were seen to be fair. Eaga told us that they operated a complaints system which was independently assessed and audited, and normally any concerns which installers had were taken through that formal route. Eaga believed that they had always operated a transparent system. They had recently extended their appointments process to include debriefings with unsuccessful installers to share with them the reasons for their non-appointment. Generally, complaints from installers concerned the subjectivity of appointment decisions. Eaga accepted that the qualitative aspects of installer bids needed, as far as possible, to be put on an objective basis. At present such decisions were reviewed by senior managers in every case. However, Eaga expected to have in place by September of this year a system of installer accreditation and assessment which should provide a more objective basis for assessment against key criteria.[70]

Conclusions

43. Both NEA and Eaga are closely connected with the insulation industry, and all three have a common financial interest in the Scheme. It is therefore important that the Scheme should include sufficient safeguards to ensure that the cost of work done is kept under proper scrutiny and control, and to ensure that the Scheme does not operate to the undue advantage of installers. We look to the Department to ensure that such safeguards are in place.

44. We are surprised at how little attention was paid to the cost of claims up to July 1997. The Committee note the Department's emphasis on quality rather than the cost of work done, and the consequent improvements in quality that have been secured. Nonetheless we are surprised at the degree of variation between different installers in average costs claimed, sometimes for similar work in the same area. We are also concerned that the Scheme may encourage installers to claim the grant maximum, regardless of the extent of work done.

45. The Department and Eaga should, under the new Scheme operating since July 1997, introduce more competition between installers when area vacancies arise, give price greater prominence in the appointment of installers, and allow price to be a key factor in allocating funds and work to installers once appointed, so that the most benefit can be achieved for a fixed amount of expenditure.

46. The Department should also investigate claims by local authorities that they can get work done more cheaply than under the Scheme, by use of local competitive tendering, and if these claims are borne out consider whether the Scheme could be modified to secure similar benefits.

47. The Department are now taking action to clarify Eaga's legal powers to challenge or amend unreasonable claims. If uncertainty still remains once the Department have taken appropriate legal advice, the Department should seek to clarify such powers and responsibilities by means of revisions to the governing Statutory Instrument and Eaga's contract.

48 C&AG's Report para 1.8 Back

49 Qs 106-120; Evidence, Appendix 1, pp 22-25 Back

50 Qs 9-10 Back

51 Qs 90-91 Back

52 C&AG's Report paras 3.51, 3.54-3.55, Figures 24, 26 and 27 Back

53 C&AG's Report para 3.54 and figure 26; Qs 84-86 and 129-130 Back

54 Qs 131-132 Back

55 Evidence, Appendix 1, pp 22-25 Back

56 Qs 94-95 Back

57 C&AG's Report para 3.51 and Figure 24 Back

58 Qs 87-89 Back

59 Q 128 Back