Examination of witnesses (Questions 280
- 295)
WEDNESDAY 12 JANUARY 2000
MR BRIAN
OAKLEY-SMITH
and MR DEREK
FOREMAN
Chairman
280. And this is very new territory, in the
discussions on the contract. What discussions did you have, and
indeed talking with the elected members of the authority, and
this is a very long contract, and, of course, one of the nightmare
scenarios in any of the long-term contracts with the local authority
is that the contractor goes out of business; what discussions
went on about that eventuality?
(Mr Oakley-Smith) It is a nightmare situation for
us, as well.
281. More of a nightmare for the people getting
the education, I suspect?
(Mr Oakley-Smith) I think there is a point to be made
there. There has been some discussion, the connection between
the financial penalties, on the one hand, and where the situation
gets to the point where, for any reason at all, the contract needs
to be terminated. And, in a sense, there is so much at stake for
us that we do not really need the financial penalties on top of
that, but, I guess, for sort of public accountability reasons,
the financial penalties have to be there; but the more they get
applied the more you push yourselves into a situation where the
contract cannot be done, and there is a limit to the extent to
which financial penalties will incentivise anybody. And we were
very insistent that any financial penalty should fall on us and
our profit and not on the education service in Islington, because
it would seem to us to be counterproductive. If, for any reason,
the contract breaks down, on either side, either for poor performance
or any other reason, then we have debated pretty carefully how
you would apportion the blame and any financial compensation;
that has been one of the areas that was subject to negotiation.
But, clearly, the authority and the Department need to know that
the private contractor is strong enough financially that it is
unlikely to be pulled down by doing badly on its other areas of
business, for example.
Mr St Aubyn
282. Can I just take you back to this point
about public consultation. I find it difficult to understand why
you could not just have a presentation by each of those who had
been invited to tender, to the public, in a hall, and answer questions
from the general public and have that sort of interaction. It
was part of the tender process in Guildford when we contracted
out a school, we did go through that, and it was significant in
persuading people locally of the merits of the whole idea, that
they actually saw, if you like, who the characters were they might
be dealing with in the future?
(Mr Oakley-Smith) We did meet representatives of the
unions, we did meet representatives of the education committee,
and we did meet heads, but it was not considered to be a proper
part of the tendering process for us to do public presentations;
and there are arguments for and against that. We have taken a
very strong line that we do not want to be drawn into making any
specific promises or suggestions until we can talk to the staff
directly and to the heads, those are the first people who should
hear it from us, and that is right at one level but it also precludes
a wider democratic consultation. I am not quite sure how; if you
go through that open, public process, you have got then to have
some mechanism for the public to be able to feed back their views,
and the council would then have to have, I guess, fairly good
reasons for ignoring the prevailing opinion.
283. It would come down to value for money and
what made sense, but you could certainly, at that sort of meeting,
present a vision of how you saw the future of education in Islington,
and you could tell the people of Islington why you had the qualities
that were needed to improve the situation?
(Mr Oakley-Smith) We would certainly need, as a prelude
to that, to be able to talk to the staff, I think, and to the
heads.
(Mr Foreman) I just think we need to remind ourselves
about the scale of this, even in an authority that is as relatively
compact as Islington, geographically and otherwise. I have to
say that it is not like a school, it is not a question of "We'll
have a meeting;" you would end up with a whole series of
meetings, because of the sheer nature of having to meet with different
phase groups, primary, secondary and others, and other community
groups, and we have found this already, understandably, where
groups say, "Well, if you're meeting them, why aren't you
meeting us?" You would actually be talking about a very substantial
road show there, multiplied by four, because you would have four
contractors doing it. And, forget other reasons, which Brian has
touched on there, just in the sheer logistical terms I can imagine
an authority throwing up its hands at that; that is not to say
they may not decide to go through it, for all the reasons you
mention, but it is not as straightforward a thing as calling a
meeting, it would be a very substantial, public consultative exercise
to get into that. And, certainly, if you take somewhere like Islington,
that would not be a passive audience, they would expect quite
a lot of space and time to make their points; that also would
be difficult.
(Mr Oakley-Smith) I think the justification for doing
it in the way that it has been done is that the members have been
elected to represent the views of their constituents and that
they must take the responsibility for the detailed negotiations
and the choice of the contractor, and then, when that choice had
been made, it would be up to the contractor to demonstrate why
that had been the case. You could involve yourself in a more direct
form of democracy, but there are severe practical difficulties,
I think.
Chairman: There are always severe practical
difficulties, Brian, but it is the case that in other service
provision, when one is contracting perhaps for a new sports stadium,
or for a new waste contract, very often, rival bidders for that
contract do present actually directly to the public in a consultation
process, and I think that is what Nick is getting at; in this
very sensitive area, this is a concern.
Mr Foster
284. When Professor Barber came to the Sub-Committee,
he said that the contract between Cambridge and Islington would
run between five and seven years but would not be subject to a
mid-term review. What measures of success will we see if your
contract is actually achieving the desired results?
(Mr Foreman) Before I answer the last question, can
I say that has moved on a bit since then, in that there could
now be a mid-term review. In the later stages of discussions,
over the last few weeks, mutually, we have all agreed that, were
there to be some very substantial developments of one kind or
another—not related to performance, etc., because that is
picked up elsewhere in the contract—were the circumstances
in which we were operating, since seven years is a long time in
anything nowadays, to change substantially, it would be open to
any one of the parties to initiate a debate, on which we would
all have to agree, so it would not be a unilateral decision, but
it would be practicable to initiate a review even before the end
of the contract.
(Mr Oakley-Smith) We would not want to be the only
LEA left in the country in seven years' time.
(Mr Foreman) On the answer to your question, without
getting too technical on you, the performance indicators on which
we are based are split under one heading, which is really about
pupil performance and school performance, so results, exclusion,
attendance, a whole series of things. But then there is a whole
series of other indicators which are monitored either weekly,
monthly, quarterly, six-monthly, annually, on an ongoing basis,
which pick up performance of an efficiency and effectiveness nature,
value for money, in supporting those key activities of developing
pupil performance, and so forth. So there is almost constant monitoring
going on throughout this contract, courtesy of that, and the requirement
in the contract is to have a contract management information system
to allow that to happen, to be monitored, on a regular basis.
So we are going to be picking up all the standard indicators of
Key Stage results, GCSE, we will be picking up our own monitoring;
we intend to introduce into the schools, though to some extent
it is there already but we want to develop it further, self-monitoring
by schools, on which we will have the outcomes of that. And we
will have a whole panoply, and I mean a whole panoply, it takes
up about 25 pages in summary form, of indicators of one kind or
another, everything from how often their `phone is answered on
the help desk through to how quickly people get responded to,
and so on and so on, and what value for money we are achieving
in the contracts that we ourselves are placing elsewhere. I promise
you, this particular process is not going to be short of monitoring
or evaluation, and we are all going to be pretty much clear, the
councillors, ourselves, their officials, just how it is developing
as it goes along. This is not once a year we have a good look
and see whether it is going, we need to spot, particularly with
these targets on the educational performance, very early on if
the trend line is moving offline; it is no good waiting and seeing
whether it has and then trying to do something about it in arrears,
we have to be very proactive in that respect.
285. But how different is this sort of quite
detailed breakdown of performance indicators, how different is
that under Cambridge's, really, compared with what the LEA currently
adopt?
(Mr Foreman) Even under best value proposals, the
performance indicators that are being proposed for best value
do not go anywhere near as far as we are being asked to comply
with.
(Mr Oakley-Smith) The review that was referred to
is if both parties agree that the situation has changed so significantly,
or dramatically, that, quite apart from all this monitoring that
is going on, it makes sense to review the situation, either positively
or negatively; it might be positively that the council wants greater
security after four or five years and wants to negotiate a longer
contract, or it could be that the constitutional or legislative
framework has changed significantly and it just does not make
sense to continue on the same basis. So that is the reason for
a review, a possibility being put in.
Chairman: Can we move on to the end of contract
issues, and I think Stephen wanted to ask a question in that area.
Mr O'Brien
286. Thank you, Chairman. Clearly, when the
contract comes to an end in its natural course, if we put to one
side a termination event, of whatever nature, the option is going
to be either renewal or let to another provider, subject to all
the issues you have mentioned about barriers to entry, and hopefully
you will have a competitive advantage by having been successful
in securing this, as of Friday, anyway, or, indeed, the LEA effectively
take it back unto themselves. Put most crudely, what is the objective;
is it, effectively, to make you, or ultimately the LEA, redundant,
in terms of Islington schools?
(Mr Foreman) As far as we are concerned, it is to
strengthen the effectiveness of the LEA; whether the LEA then
decides at the political level that the best way to continue is
with us or some other private contractor, or whether they take
it back in-house, will be a matter for them. But our objective
is not to demonstrate that a private company can replace an LEA,
it is to demonstrate that, where an LEA is failing to deliver
its targets and objectives, a private company can go in and restore
the situation, and restore to the authority the freedom to choose
one of those options, which they do not have at the moment.
287. So clearly interventionist, but not only
at the same time as providing a contracted service but a pathfinder,
a sort of recovery vehicle, if you like, for the LEA?
(Mr Oakley-Smith) Absolutely, yes, that is very well
put.
288. In that case, looking at it from a private
company's point of view, which clearly you must and are, say,
after five years, five and a half years, there will come a point
where the seven-year lapse of time is upon you all and there will
be a process by which the question as to what will happen thereafter
will take place, you will have an incentive to keep on performing
well in order to hope to be renewed, if that is what is likely
to take place, but particularly the renewal does not look the
likely option, I am concerned about what really gives you the
incentive to carry on at the same level of hunger, commercially,
because, ultimately, these pupils have only one chance at school,
throughout the period of time, and we do not want any part of
that contract to be subject to that?
(Mr Oakley-Smith) Penalties will still apply, right
up to the end of the seventh year, and the point is that our standing
in the education world will depend on a successful exit from that
contract, or a successful transfer, so we shall have a major vested
interest in making sure that the termination of the contract is
successful, and seen to be successful. After all, if we are successful
in Islington we will have the seedbed for the whole range of activities
that an LEA engages in, and we would expect to build a lot of
consultancy work on the back of that, both here and overseas;
and, therefore, commercially, we have got just as much interest
in seeing the contract terminated successfully.
289. Yes, I find that helpful, because what
in effect you are saying is against measurable standards and there
is a wider debate going on about consultation, and since you are
the first contract you are the guinea-pigs, in every respect,
but ultimately you are an LEA doctor?
(Mr Foreman) Yes.
(Mr Oakley-Smith) Yes; absolutely.
(Mr Foreman) I have to say that that is absolutely
spot on, but I do not think we will claim necessarily to speak
for other people on that.
Mr O'Brien: I understand that. I was trying
to look at it from your point of view.
Chairman: I get very concerned when people start
bringing notions of doctors into this; some of my experience and
knowledge of the Health Service makes me rather concerned. Perhaps
we will even get through to looking at medical education in this
Committee at some stage. But, apart from that, Stephen, have you
finished that line of questioning?
Mr O'Brien
290. Indeed, I have, yes, thank you, Chairman.
(Mr Foreman) Can I say just one thing. Part of the
contract requires you to produce a lead-out plan; that does not
deal with the macro issues you have just discussed, but there
is thought there, quite some way in advance of the end of the
contract, to start preparing for how it will be handed over, not
to whom but certainly how it will be done, so it is covered at
every level. Sorry, Chair.
Chairman: That is fine. We are going to move
along to a slightly different line of questioning, to finish this
session, and that is staff conditions and the conditions of service,
and, Gordon, you have a question on that.
Mr Marsden
291. As I understand it, the DfEE have confirmed,
and you have accepted, that, under the contract that you have
signed over Islington, TUPE will apply, and you are accepting
that, but also that the Islington contract will protect staff
pension rights and that transferred staff who belong to the local
government pension scheme, or the teachers' pension scheme, they
will be able to remain in those schemes. You will also be aware
that the whole area of TUPE is, as it were, an ongoing process,
not least because of the decisions that have been made in the
European Court, and only this last week, in fact, following various
questions I tabled, clarification of the Government's current
position on TUPE, a new clarification, has been issued. I suppose
really what I want to get at is the extent to which you feel that
these undertakings, which you had to enter into, are going to
affect your relationship with staff, and indeed your ability to
provide a service in Islington. And, perhaps just to focus that
point, there have been suggestions that TUPE, as regards pension
rights, pension rights should be automatically included under
TUPE, they are not at the moment; this was a separate provision
that was obviously made under the terms of your contract. Is that
something that you, as potential bidders for other, similar sorts
of contract, would be happy to see in the future?
(Mr Foreman) Firstly, we had no problem in being persuaded
to take it. We asked at a very early stage whether we would have
the facility to regard it as TUPE and to take on pensions; we
were told, TUPE, no problem, pensions there might be, and in the
meantime regulations are wending their way through for both the
local government and the teacher superannuation schemes. We would
have had a strong reluctance to take on the contract without that
facility. And this is not just a moral issue of fairness and equity,
it is also good business, in that we will have to replace people
as well and a lot of the people we will want to recruit will come
from a background which will have either local government or teacher
superannuation provisions, and we would be distinctly unattractive
to them, as an employer, if we were not able to extend that. And
it is not just the people who are there who are being transferred
across from Islington, it is over a seven-year contract trying
to replace people. So we have no problem about this. I have a
slight reservation about whether it is a good idea to put it into
TUPE, because I do not claim to be a TUPE expert, but I have tried
to follow it, and it has got very convoluted in terms of handout
at the end, and so forth, and I think probably I would prefer
the pensions to be separate. As long as we have access, and we
have been given access, here, by being admitted to both schemes,
and we can extend the same arrangements to people as if they had
been working for a local authority, I do not have a problem; and
my instinctive reactions keep it outside TUPE but keep it in parallel
with it.
292. On that point, you were saying you were
being positive in accepting it, and you also said, I think, previously,
in response to a question that Nick St Aubyn put to you about
public consultation, that the unions had been involved in this
consultation process before you were the chosen contractor. Did
this issue, I am sure it did, but in what form has this issue
come up with the unions, and have they, and indeed other teacher
representatives, been broadly satisfied with what you have told
them?
(Mr Foreman) Yes. They asked us those questions, and
we said exactly the same thing. Under our arrangements we have
no problem about extending local government and teacher superannuation
to existing people, neither would we have a problem about most
of the people that joined us. It would not necessarily be applicable
for everybody that joined us, because, take the teacher superannuation
scheme, for example, there are some fairly complex rules about
who is allowed to be admitted to that, and so some people that
we might be bringing in on the strength, because there is no differentiation
in law between CEA employees and CEA/Islington employees, we might
be bringing in people that were better placed on another pension
scheme. And we are collaborating in this exercise with Mott MacDonald/CEC,
who have their own pension scheme, so there will be a mixture
of pensions here.
293. Do you envisage that, because obviously
this is a very new ball game, you are redesignating people away
from traditional LEA nomenclature, do you envisage this question
of redesignation, is that going to cause teething troubles in
terms of things like defining who goes in and who does not go
in the teachers' scheme?
(Mr Oakley-Smith) No.
(Mr Foreman) No, I do not think so. All the people
who are currently in local government will transfer across on
local government, and likewise on teacher superannuation. People
who come to us afterwards, and I do not want to get too bogged
down, but the rules are different anyway, as you probably know,
and in the old days you could stay in the teacher superannuation
scheme pretty much whatever you were doing; those rules have now
changed, so if you move out of one type of work and into a different
one then you have to come across to the local government scheme,
you are not allowed just to remain in the teacher superannuation.
So there will be cases like that with us, just as there are with
any others.
294. And that will not change under the way
in which you administer this?
(Mr Foreman) No.
Chairman
295. Can we bring this session to a close, just
by indulging the Chairman with one last question, and that is
really directed to both of you. I and this Committee I do not
think know just how large your company is and what capacity you
have. If there were a potential of a number more contracts coming
up immediately, how many, with your present size and capability,
could you take on, at the moment?
(Mr Oakley-Smith) We certainly would not want to take
on any more until we were certain that we had got Islington well
and truly launched. As you know, there is a lead-in period of
three months before we take over the staff on 1 April, and we
have a foundation team in during that period, and then moving
towards permanent staff taking it forward at the top, that is
a senior management team, from that time onwards; we want to be
sure that we have completed that phase. But the foundation team,
when they have completed that phase, would be available for other
projects. So, I think, in the medium term, we would be able to
recruit and add to our existing expertise and would be able to
look at other possibilities, and in reality I do not think we
could do that, certainly, not within the next six months, I would
say.
(Mr Foreman) Can we just qualify it, and that is that
on the Islington model, in other words, a whole service takeover,
that might be slightly different if it were not a whole service
takeover, where you were talking about a more limited, as indeed
there are in some places, where they are talking about particular
services needing support, that might be a rather different timescale,
but the effort and focus and strategy, and all the others needed
to mount a whole service takeover, are such that that is pretty
demanding. Would you mind if I add a supplementary, Chair, because
it came to me, when we were talking earlier, in fact, we should
have said that. We talked about the question of stamina tests,
and everything else, earlier on; one of the advantages of that,
I have to say, is, leading this exercise, although it has been
quite difficult going through and demanding at the time, actually,
if we are honest and fair, it has set us up rather better to deliver
it, because there is a whole series of things which we have had
to bottom out, perhaps earlier than I might have thought was going
to be the case, but the process has required us to do it. You
have to do that only once, and that has actually set us up rather
better, and if I am honest we will probably hit the ground running
rather better, as a result of being put through that mill.
Chairman: Thank you for that answer and thank
you for the fullness and frankness of your responses during the
morning. And I am sure the Committee would like me to say that
we have found this a very useful, instructive and informative
session. Thank you very much for coming.
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