Examination of witnesses (Questions 1
- 19)
MONDAY 9 MARCH 1998
SIR JOHN
BOURN, KCB,
MR ANDREW
TURNBULL, CB,
CVO, MR
BRUCE SHARPE,
MR JOHN
CLOUGH, MBE
and MR FRANK
MARTIN
Chairman
1. This afternoon, we are considering the
C&AG's Report on the Department of the Environment, Transport
and the Regions' Home Energy Efficiency Scheme. We have in front
of us, Mr Andrew Turnbull. Welcome, good afternoon. Could you
perhaps introduce your colleagues for the benefit of the Committee?
(Mr Turnbull) On my left, Mr Bruce Sharpe, from
the Environmental and Energy Awareness Division in the Department,
who oversees the HEES policy and the contract with Eaga. On my
right, John Clough, the chief executive of Eaga Ltd, who are the
Department's contractors delivering the HEES scheme.
2. Thank you very much. I will go straight
into the questioning, if I may. I will start with paragraph 2.18
in the Report, which says that since July 1997 householders are
expected to have the most energy efficient measures installed
first. However, draught-proofing still remains the most popular
measure, representing over 70 per cent of grants, even though
it is the least energy efficient. Are you satisfied that enough
is being done to promote those measures which are most energy
efficient?
(Mr Turnbull) It has been a feature of the scheme
from the start that there has been an element of choice. Draught-proofing
and the element of comfort that it brings has always been a popular
feature of the scheme and has always produced very high satisfaction
ratings. Also, for a large number of people, about 30 per cent,
who live in flats, draught-proofing may be the only measure they
can choose. When we changed the scheme, we sought to increase
the priority given to energy efficiency and that led to the decision
to bring in cavity wall insulation, but although we want to give
greater weight to energy efficiency we recognise comfort as a
perfectly valid objective of the scheme. Over time we think there
will be a swing towards cavity wall insulation, which is more
efficient.
3. Does that mean you are not in a position
to assess that swing, as you term it?
(Mr Turnbull) We monitor it quarter by quarter,
and we can see already that cavity wall insulation is gradually
rising as a share of the scheme.
4. Others will no doubt want to elaborate
on that. Let us move on for the moment to paragraph 3.5. The Department's
contract with Eaga has put Eaga in a dominant position in the
field of home energy efficiency, which makes it difficult, to
say the least, to find competitors or comparators for what it
does. What is the Department going to do to generate more competition
for Eaga in the run up to the renewal of the contract in 2001?
(Mr Turnbull) We will no doubt come to this question
about the single tender contract. We made it absolutely clear
when this was renewed on a single tender basis in 1996 that that
related to the particular circumstances of the time and there
was no presumption, when the contract expires in 2001, of renewal
for Eaga without competition, and they understand that perfectly
well. The first thing we need to do is to make it absolutely clear
that this is a contestable contract. We hope that others will
come in, we will certainly advertise that fact. In the lapse of
time between 1996 and 2001 we will have seen five more years of
market testing, of PFI, of facilities management, and I would
expect that the kind of people who could run this contract who
we did not find in 1996 may well have come into existence by 2001.
There were the special circumstances in 1996 which led us to make
the choice we did.
5. You may get questioned on that and other
aspects shortly, but I will press on because I want to cover the
ground for the benefit of the Committee. I will go to paragraph
3.37, where I see that Eaga has procedures to ensure that grant
recipients are indeed eligible for grant. These procedures rely
heavily on the installer and on Eaga's own inspectors, who both
have an interest in the grant being awarded rather than it being
refused, to carry out the requisite checks. Are you satisfied
that the checks on eligibility are sufficiently robust given that
inevitable incentive?
(Mr Turnbull) The installer as part of the contract
is required to see documented proof that the benefit recipient
is in receipt of a particular benefit—they have to see a
benefit book or something of that kind. When they make the claim
they have to give an assurance they have done that. Eaga's inspectors
then go and check themselves whether someone who said they were
receiving housing benefit was in fact receiving housing benefit.
They find, as it says here, in a small number of cases the householder
may not be able to produce the evidence they gave to the installer.
Sometimes the matter is subsequently cleared up and the evidence
is produced, and if it is not then the claim is disallowed and
the installer bears the cost. So there is a significant penalty
for not going through that procedure.
6. You are comfortable that the incentive
does not blunt their aims?
(Mr Turnbull) Yes. What they cannot check, of
course, is whether someone should be in receipt of a benefit.
That is something they are not equipped to do.
7. I was not setting them up as fraud investigators
in this context. The next question covers paragraphs 3.33, 3.47
and 3.49. In the first six years of the scheme's operation, until
July 1997, there appears to have been little emphasis on cost
when appointing installers to work under the scheme and little
attention to vetting the cost of work by installers. As a result,
there have been large variations in the cost of the work done.
Why was it six years before the Department asked for greater attention
to be given to the cost of work?
(Mr Turnbull) The emphasis on quality was because
people were very conscious of the fact they were in a sense inviting
builders and installers into the homes of people who were possibly
vulnerable to exploitation, and that has been a very key part
of the scheme. We have gradually, as the scheme has matured, changed
that, and once we have become more confident that quality was
established we have been able to give greater emphasis to price.
As to why it was not done earlier, I do not know that I have an
answer to that. They made a judgment when it was reviewed in 1995-96
that the time had come to make this change. There were of course
controls all the way through this period. It is just that we recast
the scheme in a way which makes it even better.
8. The very fact it was amended indicates
that there was some need and I am rather surprised it took six
years to assess the qualities. It seems a long time to do that
when virtually every installer was being assessed all the way
through. However, again others may come back to that, but let
us move on. Paragraphs 3.22 and 3.33 apply now. Since July 1997,
more emphasis has been given to price when appointing installers,
but the principal determinant of future funding for installers,
once appointed, is not their price, but their ability to spend
previous quarters' allocations. What scope is there for price
being a key factor in allocating funds to installers once appointed
rather than their ability to spend money, which is the way it
works now?
(Mr Turnbull) Well, this is the direction in which
Eaga will be moving. However, if you take this to its logical
conclusion and you have two installers and one is cheaper than
the other, and you give all the work to the cheapest installer,
you end up with only one installer and you are vulnerable to the
performance of that installer. There is a reference in the Report
to making a move on an experimental basis to ensure that there
are still two or three installers in the area who are capable
of carrying out the work.
9. Well, that brings me rather neatly to
a question for Mr Clough, if I may, Mr Turnbull. I see that some
installers have complained about the fairness and transparency
of Eaga's procedures for selecting installers to do work under
the Scheme. What more will Eaga be doing to improve its procedures
and to ensure that it is seen to be fair? Whilst you are answering
that question, could you also explain to me why competition appears
to be so carefully managed, such that you only have perhaps five
applicants or five competitors for every area with perhaps two
per vacancy? Can you give me an answer to that?
(Mr Clough) Certainly. The procedures, Chairman,
in terms of Eaga's openness and transparency with regards to installer
appointments, we do operate a complaints system which installers
are made aware of which is independently assessed and audited
by Lloyd's Register as a result of Eaga's ISO 9000 accreditation
and clearly any concerns which installers have are taken through
that formal route. We have, we believe, always operated an extremely
transparent system and one which has given fully documented reasons
for non-appointment. Clearly there comes a point at which one
has gone as far as one can with regards to sharing the reasons
for non-appointment and we have recently extended this process
to include debriefings of unsuccessful installer applicants. This
builds upon the process of what we would term regional road shows
to encourage those non-successful applicants to come along and
discuss with us how they could better meet the needs of the Scheme
in the future. There were a number of specific criticisms with
regards to the transparency and issues such as subjectivity with
regards to judgments and, generally speaking, the complaints from
installers refer to subjectivity. Now, we fully accept that there
are qualitative and quantitative aspects of the assessment of
installer bids. The qualitative aspects need, as far as possible,
an objective basis and we are moving towards having, and expect
by September of this year to have, agreed again with our Lloyd's
assessors on a basis of installer accreditations and installer
assessment, or "vendor assessment", to use the quality
term, which will give an objective basis for assessment of key
and critical criteria. What I would bring out, however, is that
the qualitative and quantitative issues that we look at currently
are assessed by a team of assessors, it is not just one person's
judgment, and decisions are reviewed by senior managers in every
case. With regards to the competition issue and the control of
competition, we did operate a much more open system in the early
days of HEES where in fact every vacancy was open completely to
every installer who was available in the country to bid for that.
That was of course the other extreme to the current situation
and one found that you could have 20 or 30 applications for a
particular area and whilst, on the face of, it was extremely open,
it did of course have an administrative overhead and one where
it was very difficult then to deliver subsequently the openness
and transparency which is required from a much more managed process.
We did take advice from various authorities in the field and we
do comply with European standards on best practice with regards
to compulsory competitive tendering, et cetera, and the guidance
there would be that generally between two and seven applicants
per vacancy would be the norm and we average five.
10. You average five per area, not five
per vacancy.
(Mr Clough) Five per area, that is correct, but
if we, for instance, appoint two installers per area, one could
argue that that is two and a half per vacancy when in fact it
is very much like an employment interview, a job interview where
if you have two placements, then of course the first placement
is filled from a short-list of five and the second placement is
filled from a short-list of four and, therefore, there is actually
far more competition than two per vacancy.
11. I see. Well, I am sure others will come
back to that, but perhaps I can come back to Mr Turnbull and paragraph
3.73, given what we have just heard. Local authorities surveyed
by the National Audit Office say they can get work done more cheaply
than under the Scheme by the use of local competitive tendering.
Has the Department investigated these claims and is there scope
to get better value from the Scheme by these means?
(Mr Turnbull) Well, we have not investigated any
claims. What we actually observe is that local authorities are
not moving out of HEES and doing it themselves, but indeed precisely
the opposite, that the figure of 50 per cent given in 3.73 is
rising and in the latest quarter is over 60 per cent. All the
evidence is that local authorities are very satisfied with the
Scheme and are using it extensively.
Chairman: Perhaps
we can open the questioning up now.
Mr Davies
12. I just have a few points touching on
some of the broader thrusts of what the Chairman said. First of
all, are you satisfied that with the advent of new products, such
as cavity wall insulation, et cetera, and, following that, no
apparent increase in the take-up of those particular products
or, rather, no reduction in the take-up of draught insulation
that the marketing in your organisation is at all effective?
(Mr Turnbull) Well, there has been a take-up of
cavity wall insulation. By number of cases it is 14 per cent and
by funds 23 per cent. This is one of the issues on which we are
reviewing the Scheme. What happened was that it was reviewed in
1996/97 and when the new Government came in, the new proposals
were all ready to roll out. These were presented to the Minister,
Angela Eagle, who said that this should go ahead, but, nevertheless,
she wanted to review the nature of the Scheme and, in particular,
one of the elements which is the prioritisation of the choice
of measures, for example, whether people should be restricted
to only one measure in the category. That is one of the issues
that we are now going to review.
13. You say that obviously the idea was
consumer choice, but my understanding of this scheme is that what
you are essentially trying to do is to best use limited resources,
targeted against those with greatest need, most efficiently to
deliver affordable warmth. Do you say that is a reasonable summary
of what you are trying to do?
(Mr Turnbull) Yes.
14. Can I take you from there then? It has
been established that whilst draught insulation is popular, and
from a commonsensical point of view it is nice to have it because
you can physically see the draught on the curtain so people will
tend to opt for that, do you not agree that it is incumbent upon
you to actually almost force the issue for those who need it to
actually deliver affordable warmth by saying, "What you need
to do is this and not that", to deliver much better figures
against some of the other products you offer?
(Mr Turnbull) I can give you what the Government
at the time, when it reviewed it, stated the objectives as, which
were, "To secure better standards of energy efficiency, thus
reducing fuel costs and increasing comfort where needed in the
homes of elderly, poor and disabled people." It has not been
the policy to require people to take a particular measure and
there has definitely been an element of choice, and improving
comfort has been regarded as a valid benefit of the scheme. As
I say, this is one of the issues we want to review, including
reviewing whom it is going to. We have not gone to people and
said, "You must have cavity wall insulation."
15. On the first point I made, the simple
point, it is acknowledged now and there is a tighter focus on
other products rather than draught insulation?
(Mr Turnbull) Yes.
16. That is some sort of acknowledgement
that that is where we should have been going and it is now where
we are going?
(Mr Turnbull) I do not know about "should
have been", but we certainly are looking at this issue of
whether we allow people an extent of choice or whether we should
be giving people a greater steer, or set the scheme up in a way
which gives greater——
17. That's okay. Can I move forward on the
same theme of the best use of public money to directing it at
need? We are told at the moment that there is not a lot of data
available on the regional spread and the household type in terms
of take-up of these products. Is that fair? That is what I seem
to have taken from this Report. We have not got a lot of quality
data on precisely the range of households taking it up within
the spread you are targeting. In other words, if I was to say
to you, "Is it not the case that take-up within the target
of people who are eligible is by the better off people within
that spread", would that be right?
(Mr Turnbull) We think you may well be right.
This is going to people whose energy efficiency characteristics
of their homes are mediocre and being made better; people who
have some measure of fuel poverty, who are poor but not very poor.
Nevertheless, it is still valid to give them that improvement.
We are aware of the fact that the take-up, for example, in the
private rented sector (where probably the poorest people are and
the worst energy efficiency is) is actually very limited and that
is precisely the area which this review is going to look at.
18. You are taking action on targeting?
(Mr Turnbull) Yes. There is a feeling that although
we are improving the energy efficiency of the housing stock, we
are not necessarily improving the energy efficiency of the worst
stock; probably the stock in the bottom half of the distribution
but it is not necessarily the worst.
19. As you have just said, you are both
improving the efficiency by the products you are pushing, in terms
of insulation, and, secondly, you are improving the targeting
in terms of doing more energy efficiency things for those who
are in most desperate need rather than less efficiency for those
who are in less need?
(Mr Turnbull) When you say "we are improving",
we are doing the research necessary so if we wanted to make a
change of that kind we would be able to do it. The principal new
source of information is the English House Condition Survey, where
the field work done in 1996 is beginning to become available.
That will tell us a lot about the housing stock, what people are
spending on their energy and energy efficiency, and it will give
us a much better feel of where the potential clients of the scheme
might be.
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