Examination of Witnesses (Questions 80
- 88)
WEDNESDAY 24 JANUARY 2001
MRS MAVIS
MCDONALD
CB AND MR
BRIAN GLICKSMAN
80. A number of people have commented on this
ending up just being a process rather than getting to the heart
of the issue. I see this in some ways as this great difficulty
of the differences between a classical bureaucracy and a management.
One of the things that came up in my mind was about encouraging—I
use that word advisedly—civil servants to be able to carry
out this well managed risk. How do you do that? Can they be entrepreneurial
in that sense in a bureaucracy?
(Mrs McDonald) I do not quite know what you mean by
"entrepreneurial". They can certainly be innovative
and come up with new ideas and new approaches.
81. Does a bureaucracy prize that sort of activity?
Is that whet gets you brownie points in a bureaucracy, being that
innovative?
(Mrs McDonald) It depends what the culture of your
bureaucracy is like. The immediate criticism of the Civil Service
has been that they are risk averse in a negative way. I do not
think anybody is criticising them for trying to control money
well, but they have been negative in some senses and they might
often have used the kind of framework within which they are operating
to judge that.
82. You used the words "tight control",
words that are often used with bureaucracies. Yet, if you pose
that against flare, innovation, managerial skill, is there a tension
there? How do we get the tight control that bureaucracy operates
under with all the other facets that you are looking to develop
in this well managed risk?
(Mrs McDonald) I do not think there is a tension there.
There are some things that you want to control tightly like the
way you manage a big IT project or the way you manage any other
kind of procurement or works maintenance programme. In terms of
how you develop thinking about the way you might move forward
in various ways, you do want to be innovative. What you want to
ensure is that you have a culture that rewards that innovation
and encourages it, by accepting that that is a style of behaviour
and a necessary part of your senior management leadership that
will cascade through the organisation on some of the things I
mentioned earlier in the Civil Service report programme about
trying to do that. It is about judging on those behaviours being
a normal part of the formal appraisal and the way in which you
get paid that is part of the package that was being developed
in the Civil Service report programme.
83. What we are doing in terms of managing risks
seems to have been developed and adapted from the work that previously
has been done in the private sector. That is very much commented
on in the reports. Yet, people have talked a great deal about
the differences between the private sector and the public sector.
I would mention just two complexities in terms of the objectives
that you are trying to achieve in the public sector, much greater
than the private sector. Often you are looking for balance of
perhaps even conflicting objectives in the public sector; whereas
that happens much more rarely in the private sector. Now that
we have taken whatever good advice or good practice that we can
get from the private sector, do we really need to go back for
a much more fundamental look about what is needed in the public
sector, rather than just trying to ape what the private sector
have done so far?
(Mrs McDonald) What we are trying to do is two things.
One is to pick up on Turnbull and the concept that risk management
should be about the whole of what you are doing, not just about
the little bits that you might think are risky, and embedding
the approach about business management is designed to follow that
through. The financial system of risk management is part of a
wider shift that is going on with the introduction of resource
accounting and budgeting. It is an opportunity to pull those two
frameworks together.
(Mr Glicksman) The point you are making is very valid.
One of the reasons why we are introducing statements of internal
control a year after the private sector is because it took us
some time to think through the differences between the private
sector and the public sector in this area. The Turnbull Report
that led to statements of internal control in the private sector
said, quite explicitly, that in the private sector profit is to
a large extent the reward for successful risk taking. In the public
sector, you are working in a completely different context but,
in the public sector, we have better services to the public as
a reward for successful risk taking. There is still an equivalence,
even though it is not the same. The view we came to was that the
emphasis in the Turnbull Report on risk management as a means
of providing assurance to shareholders about the way in which
company business was managed was just as important in the public
sector. It is a different context, but the message is just as
important. We have been careful to try and extract what was relevant
from the private sector before we tried to apply it to the public
sector.
84. Can I take you on to competence? This is
something we have come back to again and again in some of the
reports we have done previously. What I am thinking about is a
realistic, rational evaluation of whoever is carrying out the
risk assessment about the competence of the various alternatives
that are available. Let me give you an example. In some of the
IT projects that have come back and forward to this Committee,
it has been clear that the department putting together the project
did not have a very good idea of what competence was available
in the private sector to deliver whatever the IT project was.
We will take immigration and nationality. There was no way Siemens
could deliver the complexity of project that they gave them. There
was a failure there; there was also a failure in the public sector
itself to specify—and there should have been some recognition
there when they were drawing that up—that they were not
competent to do that. Have we a rational view of competence that
can really allocate risk properly? Are we competent to decide
whether we are competent or not?
(Mrs McDonald) Hopefully, we are increasingly competent.
There is a lot of experience around. In the Office of Government
Commerce, we have a concentration of independent expertise that
departments can pull in and draw on and that ability to read what
suppliers give to you if they are coming in for tender is one
of the areas in which the Office of Government Commerce is going
to concentrate as part of its improvement programme. We are certainly
looking at it on the IT side.
85. The new view—it has been very much
pushed by the National Audit Office and this Committee agrees
with it—is that you break very complex projects up into
smaller packages and evaluate them as you go through. That seems
to me a very sensible way to now order this type of project, but
it still leaves you with the problem if there is not the competence
in the private sector to develop the IT projects. Our public services
are littered with failures to fully estimate the competence of
the private sector to deliver. If you are not specifying each
part of that project because you do not have the expertise internally,
even though you might call on outside experts to assist you with
that process, are we being entirely rational and realistic about
our abilities here?
(Mrs McDonald) We recognise that one of our risks
in this developing area is our access to that kind of skill. It
is something we have been giving some thought to, which is why
we need to pull in other independent advice to help us understand
how we deal with contractors. We are talking of IT but it is just
as critical in large scale construction contracts and so on. That
development of an intelligent customer capacity is clearly an
important skill in the Civil Service to check that it has. I think
the picture varies.
(Mr Glicksman) The report that Peter Gershon did that
led to the setting up of the Office of Government Commerce did
highlight these points that you are making. One of the reasons
for setting up the Office was to try and address those problems.
86. Can I go on to whether or not government
departments are fully committed to the processes outlined in this
report? Clearly, as to the Cabinet Office and the Treasury I do
not think we are calling into question their commitment to it.
Are you fully satisfied that every single department is fully
on board, understands the issues and is processing—I use
that word not in the sense that we used it earlier on—and
ensuring that this evaluation of risk and proper management of
risk is becoming part of their departmental culture?
(Mr Glicksman) The returns that we had from the progress
reports that we asked for last year have shown that every main
department has an awful lot of activity underway now to try and
introduce these new systems and to address the deficiencies in
risk management of the sort that were identified in the NAO survey.
I am confident that there is an awful lot of activity going on
and that, hopefully, the proof will be in the pudding and we will
see that emerging over the next year when accounting officers
have to sign off statements of internal control.
87. I was going to ask you about good risk management
practice. Let me give you an example. I went to the Immigration
and Nationality Department for entirely different reasons because
I happen to have a very large number of asylum seekers living
in my constituency. I went to see how they were dealing with the
cases that I know are taking an enormous amount of time. As an
adjunct to that, we have touched on the Siemens system that they
are supposed to be introducing. I never had an evaluation of where
they are getting to but the superficial impression that they gave
me was that they are not much further forward than they were when
the whole thing came to us previously. Are we improving practice
in the Home Office in terms of delivering that project which is
now years out of date? I do not want you to comment on that particular
project, but are you sure in terms of the outcomes that are being
delivered as you are introducing these new practices and that
you see improvement?
(Mrs McDonald) There are something like 12 projects
currently undergoing one of these independent gateway reviews.
There is a larger number that the E-Envoy's office have already
said will be in the programme that they will keep an eye on and
monitor. All we can do is promote best practice and ensure people
are working with us. Obviously, we do not know any details about
that particular project. The real aim is to ensure that things
that are in the pipeline now and being developed are developed
and run in a much tighter way according to these principles.
Chairman
88. I have two questions for you arising from
what has been talked about in Committee today. The first relates
to Mr Williams's rather pertinent point about politically inspired
risk arising from the minister's requirements, whatever they may
be. The current letter of direction criteria effectively assume
certainty when dealing with any project. The accounting officer
then makes a judgment as to whether it is value for money for
the taxpayer and seeks a letter of direction if it is not, in
his or her judgment. I do not want you to answer this immediately
but I would like you to look at whether or not the Treasury has
a view as to whether it is appropriate to alter that to take into
account the possibility that if a minister says we have to do
this in two years flat—take the railway case—should
that trigger a letter of direction and, if so, should we alter
the wording of the criteria accordingly? I will tell you now that
we will be discussing this in Committee in a few weeks' time,
so the quicker you come back to me on that the better. The second
question is on the question of risk transfer permanence, triggered
in effect by your example of the Royal Armouries. There clearly
is an issue here that, where a project might fail completely,
whether it is the armouries, a hospital or whatever, it may well
turn out to be unacceptable to the government of the day, even
if it is a different government, that that should be allowed to
fail. The only circumstance under which that is financially risk
free, let alone service risk free, is if there is some escape
clause or free reversion clause back to the government of the
assets involved and probably the going concern as well. Instantly,
if you had that in your PFIs, for example, that would produce
a financing problem for the provider of the PFI because he has
nothing to put his security on. Could you have a look at this
whole question of the permanence of risk transfer in catastrophic
failure circumstances, the company going bankrupt or something
of that order, and let us know what you think the implications
of that are for particularly PFI, PFI expenditure being treated
as off balance sheet—i.e., not on the PSBR. It seems to
me that that is quite a serious issue which we are only just tripping
over now with the first major failure of PFI, namely the Royal
Armouries. Could you do me a note on that too, reasonably quickly,
if possible.
(Mr Glicksman) Before the Royal Armouries hearing
next week?
Chairman: Ideally, but I will understand if
you do not quite hit that deadline. We may have already made up
our minds by the time we get the note. It just remains for me
to say thank you both very much for coming. It has been a rather
more interesting session than I thought. I thought it might be
rather dry and theoretical but it has been quite interesting.
Thank you very much for coming. The Committee will now go into
closed session.
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