Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. Why did you not extend it until after the crisis was over? Why did you need to sign the contract in the middle of the crisis?
  (Sir John Vereker) Mr Steinberg, contracts which were struck in 1995—

  41. You had extended it already, had you not, for a considerable period of time?
  (Sir John Vereker) But we had made considerable progress. I think our legal position would have been in doubt had we ignored the fact that we had invited tenders but I would have to take advice on that. The interesting thing is we had re-tendered against refined specifications of what we wanted. We thought we were close to getting, and indeed we did eventually get, a contract that was better suited to our needs, it reflected a up-to-date view of what our needs were.

  42. Meanwhile the Crown Agents have a lucrative contract without being in competition for it.
  (Sir John Vereker) They certainly were in competition. They won a competition between the time we went out to tender in November 1998 and the time we judged the competition, 7 April 1999. We ran a competition; they won it.

  43. Okay. The point I want to make, if that is the case, is it appears then that the contract was then changed. Here we are in the middle of a conflict and the Crown Agents come along. You talked earlier about the core contract. Here we have a situation where they come along, the core contract has presumably been signed and yet they come along and ask you for 157 per cent increase in costs from £893,000 to £2.3 million.
  (Sir John Vereker) No, Mr Steinberg. We asked them for additional services, that is what the contract allowed us to do.

  44. Why is that not in the original contract then?
  (Sir John Vereker) It is in the original contract.

  45. They have a blank cheque.
  (Sir John Vereker) No. The original contract, as extended throughout the period of the crisis, contains—I repeat—two elements, the core element and a call down element.

  46. Exactly.
  (Sir John Vereker) What we were doing was calling down, exactly as we had originally planned, in response to a crisis, to enable us to respond.

  47. In 2.26 it says, quite clearly "... Crown Agents, the preferred bidder, while leaving their level of charges unchanged, increased their estimate of the cost of the substantially expanded core element of the contract from ..." the figure that I have told you. They increased their core element 157 per cent. Now presumably I would have thought the core element would have remained as standard and if you wanted extra services then you would pay for the extra services. Here it clearly says it was the core element that was increased.
  (Sir John Vereker) Mr Steinberg, you are absolutely right. I puzzled over this when I read this phrase. I have to read the phrase "expanded core element".

  48. I have to say we are just poor laymen as MPs, we are not experts.
  (Sir John Vereker) Subject to correction from the National Audit Office—

  49. Some of us failed the 11 plus.
  (Sir John Vereker)—the reference here to the expanded core element is to the whole team. It is not just the original core element. What we are looking at is a situation in which the team was built up by 200 per cent—
  (Mr Matthews) Correct.
  (Sir John Vereker)—and Crown Agents' fee was built up by 157 per cent. The Department secured huge value for money. We had 25 per cent gain in cost of Crown Agents Management Fee.

  50. That does not read in the report, I have to be quite honest. You signed up to this report which gives me the impression that frankly the Crown Agents came along with a blank cheque. Let us move on to the next paragraph, 2.27, and let me quote it to you. It says: "... the original April 1995 contract nor the new contract signed on 28 October 1999 was clear about what level of activity can be supported by the services specified under the core contract". In other words, the contract has been signed originally and then again and you do not know what it is all about. You do not even know what you have signed for. That is what you are saying or the report is saying.
  (Sir John Vereker) I am not saying anything of the sort.

  51. Go on.
  (Sir John Vereker) I am certainly not saying the Crown Agents had a blank cheque.

  52. It is a funny contract, is it not, if you do not know what you are signing for?
  (Sir John Vereker) No, I did know what I was signing for. The original contract specified the core team. It specified the people. It specified the services. What it did not specify, with the advantage of hindsight, is what I would describe as the capacity to respond. i.e. it was a little bit of an old fashioned contract, it looked at inputs not at outcomes. What we are now laying on the Crown Agents' team is an obligation to have a capacity to respond. Instead of saying, well as well as saying "You have to have 15 people in your core team" we are also saying you have to have the capacity to respond, I think we say, to two sudden on-set disasters, to two long running emergencies and to two contracts for international United Nations support missions. We have moved a bit away from just listing their inputs, but we always had that, towards saying "You also have to have the capacity to respond to six crises at once" which we thought was a useful thing to do.

  53. Fine. Can I presume that under the new contract that was signed, now that the conflict is over, you have gone back to the £893,000 for core services or has the contract been signed on the basis the cost was £2.3 million for the core services? What are you signed up to now? What is the actual cost of the core services now within the contract?
  (Sir John Vereker) The new contract, Mr Steinberg, specifies a certain number of staff—

  54. The point I am trying to make—
  (Sir John Vereker)—capital and operating costs.

  55. The point I am trying to make, Sir John, which I was trying to make right at the very beginning was, you signed a contract in the middle of the conflict when it was very, very expensive because you were paying a lot of money. Now I want to know if that contract, the core contract price, that you signed for is what you originally had before the conflict or is your core price now what you were paying during the conflict?
  (Sir John Vereker) The contract now is for the core that we need after the crisis. Obviously we had not signed a contract.

  56. What is the core cost then?
  (Sir John Vereker) These questions of costs are quite tricky, Mr Steinberg.


  57. They are our meat and drink, Sir John, questions of costs.
  (Sir John Vereker) Okay. Perhaps we had better have a little exchange about costs. It might be helpful, Chairman, if you were to guide me as to how much information the Committee seeks about costs in contracts.

Mr Steinberg

  58. I am putting a simple question. All I want to know is did the contract that you signed in the core part of it, is it the cost you were paying during the crisis or the cost you were paying pre the crisis?
  (Sir John Vereker) Pre the crisis, broadly speaking.

  59. Right. The core cost of the contract is not £2.3 million, which it was during the crisis, it has gone back to basically the £900,000.
  (Sir John Vereker) The core contract is not the £2.3 million, it is a little higher than it was before because we recognise the need for enhanced services.

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