Examination of witnesses (Questions 120
- 139)
MONDAY 9 MARCH 1998
SIR JOHN
BOURN, KCB,
MR ANDREW
TURNBULL, CB,
CVO, MR
BRUCE SHARPE,
MR JOHN
CLOUGH, MBE
and MR FRANK
MARTIN
120. It seems to me from the way in which
you were established and the membership of NEA flows some suspicions
that one might have, if one had a suspicious mind, about the way
in which you deal with your installers. I am going to substantiate
what I say in a minute. I just want to run through my impression
of the way in which you deal with your installers. You are easy
on your installers. Once they are on your list they do not tend
to be thrown off. You pay their claims extremely quickly—extremely
quickly. You do not target price or cost, you target volume and
how well they are able to spend the money that you give them.
You do not check the eligibility of the people who ask for grants
that well. You hardly ever de-register installers. There are vast
cost variations which you have not satisfactorily checked. You
do not check the reasonableness of some of the claims. You only
audit them every three years. You do not stop installers taking
advantage of the scheme. One wonders how much, if one were to
accept that list, that has got to do with the origin of your organisation
and its connection with the installers.
(Mr Clough) I would say absolutely none.
121. That is an interesting answer. Can
I just go through to substantiate one or two of these, they are
not allegations, they are impressions that I have gained from
reading the report. If we look, for example, at page 48, paragraph
3.33, we can see here, and it has been referred to already by
the Chairman, your criteria does not target price, it targets
quality, it targets volume but it does not target price, which
gives installers an advantage up to the maximum. Clearly they
cannot get more than the maximum of the grant. What it means is
that you are not checking them against each other on the basis
of their price efficiency. That might be thought to be advantageous
to the installers. Do you not agree?
(Mr Clough) What it says is that we did not target
price but, of course, we do now.
122. This is a recent change to the extent
that you do now, is it not? You spent six years not targeting
prices.
(Mr Clough) A recent change operationally but
of course these changes came in after extensive consultation throughout
1996.
123. You consulted for a year but you have
been going for six years. It has taken you six years to start
targeting price.
(Mr Clough) One must cast one's mind back to 1990
and the insulation industry as it was then, it did not have a
very good reputation at all. There was clearly a need to deliver
energy efficiency measures to those in need. In order to do that
we had to look at the delivery mechanism. There was very clearly
a need to improve the quality of customer care, of service, quality
of work, quality of materials, and all of these things took time
to do. It did, in fact, take of the order of four or five years
to achieve sufficient in terms of quality standards because my
standards are such that I would not be putting anyone into a vulnerable
client's home who I was not absolutely sure would be dealing with
that client in the right way.
124. I think that is very laudable, but
whether or not it takes five years——
(Mr Clough) I believe it did take five years until
we were certain that was the case. One does not take any risks
in that regard. Then you do very clearly focus on price and that
is what we are doing.
125. Now, in paragraph 3.35 on page 48 it
says you de-registered just one installer in 1996-97. How many
of the installers who came in in that year failed their probationary
period or were asked to resign as well as being de-registered?
(Mr Clough) I believe that is in the report but
if my memory serves me right, one was de-registered, one did resign
voluntarily following discussions with us. There were four and
three respectively, four who resigned and three who failed the
probationary period.
126. Not a huge number out of 390, is it?
(Mr Clough) No. If one looks at some other statistics
which may be helpful in terms of the counter-argument to the supposedly
cosy relationship, if I can use that term.
127. That is a very perfect term.
(Mr Clough) When we did go out to market testing
42 of the appointments were not returned to the incumbent. Many
of these companies had a record of providing excellent quality
and service but their prices did not give best value. That was
18 per cent of the appointments at that time. We judged that was
appropriate because other companies did offer best value even
though those companies were offering——
128. I think it is laudable that you are
now looking at price, I think you should have been doing it sooner.
On page 56, variations in the cost of claims, paragraph 3.51:
"Many claims were at or near the grant maximum for each type
of work." I used to be a solicitor in various firms that
ran the Legal Aid scheme, I know what happens in these organisations,
how much you can get on each form, you claim it. What controls
have you had to make sure that you have not had that impact, especially
when you have got so few installers per area?
(Mr Clough) We do physically inspect five per
cent of all the work that is done, that is a minimum of five per
cent. In some years that has been as many as 30,000 homes that
we have inspected. Those inspectors are able at that point to
make an assessment as to the reasonableness of the charge for
the work. They are given that information at the time and they
work on their experience which has been gained over many years.
They have been trained to assess those sorts of factors. They
are further checked by a technical quality controller we have
who makes sure that our inspectors are all monitoring to the same
level so that we are uniform across the country. In that regard
they do identify those instances and those installers where they
view their costs to be unreasonable. We do take action. We have
demonstrated that we take action.
129. In paragraph 3.54 on page 58 is the
analysis that the National Audit Office did which found that in
some areas the difference in variation in costs was as high as
£50 even though the grant maximum was £128.50 and the
average cost for this work nationally was £112.53. That is
a large variation in costs for something which has a maximum of
only just over a double, is it not? Do you not think your installers
in some cases are taking advantage of you?
(Mr Clough) Variation can of course be downwards
as well as upwards.
130. I do not think that is what it says,
but yes.
(Mr Clough) There are instances where variations
are downwards. In some properties not a lot of work can be done.
131. That is quite true, I wanted to come
to that later. Paragraph 3.53 just above it, there is a list there
of main reasons for variations which the Department and yourself
discussed with the National Audit Office. I am sure that some
of those may well be true but I do not see one there that says
"some of the installers may be being a bit greedy".
Do you accept that could be one of the reasons?
(Mr Clough) In theory that is a reason.
132. How do you discover whether or not
it is true?
(Mr Clough) We do an analysis on a periodic basis,
albeit not every month or every quarter, as to the profitability
of installer organisations. We have reviewed that and have given
assessments of that in the past.
133. I would be quite interested to see
some of those assessments if you could send us some[6].
I just want to move on to the question of reserves. This is a
matter that concerns me a very great deal. It is probably more
a matter for the Department than it is for Eaga. Whether or not
they distribute their profits they do not mind having money in
the bank, that is quite clear because the reserves have been shooting
up since 1995. You last looked at them in 1995, whether or not
the reserves were satisfactory, is that correct?
(Mr Turnbull) We looked at them at the time the
contract was renewed. We get the annual report every year.
134. So that would be the end of 1995 that
you really last had a look.
(Mr Turnbull) We see the report every year. When
the contract was renewed——
135. Paragraph 3.15 on page 40 says there:
"...Eaga's fees were last reviewed in 1995 these surpluses
were not a cause for concern." That was the time they were
reviewed. Is that not correct?
(Mr Turnbull) They were reviewed in 1995 as a
part of the renewal of the contract. That does not mean we have
not followed them through ever since. We look at the annual report.
136. Sorry, it says: "...at the time
Eaga's fees were last reviewed...."
(Mr Turnbull) It says when the fees were last
reviewed, not when the reserves were last reviewed.
137. Was that not when the surpluses were
last reviewed?
(Mr Turnbull) They are examined every year when
the report comes in.
138. I have misled myself with that, have
I? You review the surpluses more regularly, do you?
(Mr Turnbull) The surplus is reported every year
in the annual report.
139. Are you concerned that the graph in
figure 15 is showing such a big upward trend?
(Mr Turnbull) There was a sharp rise in 1995-96.
This rate of accumulation of surpluses is now tailing off. We
would expect the figure in 1997-98 to be probably about the same
as it was in 1996-97. The big increase in this was the increase
of about £1 million in 1995-96.
6 Note: See Evidence, Appendix 1, p. 22 (PAC
221). Back
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