Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 20 - 39)



  20. Do you know what the comparative figures are?
  (Mr Gershon) We have no accurate data.

  21. You do not know all.
  (Mr Gershon) We can say with confidence, and this was brought out in the Egan Report through certain examples, that some private sector clients through employing the sorts of techniques we are now trying to introduce into the public sector have achieved dramatic improvements in the cost and schedule performance and value for money compared to traditional methods.

  22. We do not have the relative figures. Do we have the relative figures on public sector over time, in 1999 they were over budget by 70 per cent, how does that compare with 1995?
  (Mr Gershon) We do not have comparable benchmarking data. The exercise that I referred to, which was undertaken by the Bath University, was the first determined effort to establish a comprehensive baseline position, a place where we could start to do performance measurement in the future.

  23. If 73 per cent were over budget, have you any idea how much over budget that was? When you add it all up, would it be 30 per cent more than the estimated actual cost? Do we know that figure, the aggregate? If it was my business I would be interested in it. Can I ask Deryk Eke, because obviously you have come from the private sector, and I just wanted to ask a couple of qualitative questions, really, is it your impression, with a BAA hat coming in, that the culture is very different and there is something inherent in private sector operation, namely the need to maximise profits and get a big salary, and as a result that drives people to focus on productivity and reduce costs and that it is impossible to deliver through all of these peculiar structures of the public sector?
  (Mr Eke) I can answer from BAA's perspective. The thing that drove BAA was not particularly fat salaries, it was something to do with being a regulated organisation, one that is privatised and regulated in the same way as utilities are.

  24. A halfway house.
  (Mr Eke) The opportunity to earn revenue from an airport operation was limited by an RPI formula. Over the past two quinquennials we have operated under an RPI minus formula. They are currently RPI minus three per cent. The ability to earn revenue to pay for the capital cost meeting capacity demands with the regulator also demanding it was limited.

  25. If you wanted an injection of private sector skill you should have gone to McAlpine, not BAA. Is that what you are saying?
  (Mr Eke) No, no, no. What I am saying is that the drivers in terms of business drivers for BAA were there to do something about the cost of the construction industry, that is why BAA got involved in changing the way that industry and the way that the client works with industry.

  26. From what you see, are you happy with the processes that are being implemented as an effective and clear means of driving down costs in improving productivity and the proper timetabling of projects?
  (Mr Eke) Within the public sector?

  27. Yes, that is what you do.
  (Mr Eke) That is what I am doing. There are very good foundations laid through the Achieving Excellence Initiative. We are working closely now with a number of departments to improve the performance of the client. This is all about opening the heart's and mind's of clients to ways of doing things differently to business as usual. Unfortunately, there are a large number of one-offs and occasional clients within the government public sector and they tend to go to architects—sorry if there are any architects in the room—and quantity surveyors who are very good as delivering a "business as usual solution", because they get paid on a fee basis. What we are trying to do is understand from disseminating the best practice available in the private sector, and some of the public sector clients, and helping the one-off and occasional client to do things differently and be more effective as a client.
  (Sir Richard Mottram) If I can make one point, I can caricature it as a "bid low, claim high culture" which much of the construction industry applied in its relationship with private sector clients, as well as public sector clients. What we have been trying to do is find best practice at the client level and through that to help transform the performance of the industry. It is no accident that Sir John Egan was asked to do the report he did, because he headed up a company that was very successful in doing that, amongst other things. As this report brings out, there are a number of public sector and government departments who are also trying to improve client performance. It is not a private sector/public sector matter. It is quite a serious problem.

  28. Can I ask, I do not know if this is a fair question to ask, the Jubilee Line is held up as a great example of public sector failure of procurement. If it was done in a different way, in one of your new techniques, how much better would it have been?
  (Sir Richard Mottram) I think it would have been significantly better, because we would have realised at the beginning that it was going to cost more than it was assumed at the beginning it was going to cost. We would not magic it away.

  29. What about the cost estimates?
  (Sir Richard Mottram) The costs estimate, in my view, were always too low, the contingencies were too low. There was not a proper procurement process, in my view, because London Underground were trying to integrate themselves a whole series of very difficult projects, where they would have been better if they had of employed a prime contractor, or at least two or three prime contractors. The structure or the way they tried to manage the project was wrong and all of the estimating was over-optimistic. If you applied some of these lessons it would have come in probably somewhat less than it came in on, somewhat earlier and in better shape.

  30. There is a systemic reason for better estimates. Do you predict under the new regime for the tube, assuming it happens, that we will not have overruns of those magnitudes at all in terms of costs and time?
  (Sir Richard Mottram) That would be our intention, yes. There are not any big projects like the Jubilee Line on that scale envisaged.

  31. The aggregates.
  (Sir Richard Mottram) Yes. One of the objectives in relation to London Underground PPP is to improve performance on the management of infrastructure improvement.

Mr Steinberg

  32. It is always good to be a layman when you read these reports. You can read the report not having any fixed view about it—very often you can get the wrong end of the stick, which I normally do, I hope I have not got the end of the stick in this report—the report tells us there have been many initiatives to improve construction performance. The Chairman pointed out those initiative on page 19, dating back to something like 1994. One of these schemes is the Construction Best Practice Programme, page 24.
  (Sir Richard Mottram) Yes.

  33. It was established in 1998 and cost £2 million to establish.
  (Sir Richard Mottram) Yes.

  34. We are told in paragraph 1.13 on page 25, despite all of the efforts, "The Construction Best Practice Programme estimates that it has reached nine per cent of the working population in the industry". That is disastrous.
  (Sir Richard Mottram) Nine per cent of the working population of this industry is actually a lot of people. That would be my first point. My second point would be, I am not being facetious—unlike me normally—what we are talking about here is a programme which we have rolled out over two years, where the aim is to create an environment where the industry itself wants to acquire this best practice. We are pushing it out. We are certainly encouraging people to pull it off us, so to speak. There is a limit to what we can do. We cannot make people do it.

  35. I am not criticising you. I would be the last person in the world to criticise you, I think are you a very smooth performer.
  (Sir Richard Mottram) I feel trouble coming on, Chairman.


  36. The Committee are lost in admiration for you, Sir Richard.
  (Sir Richard Mottram) I feel even more trouble. Our view of nine per cent would be it is not a bad number.

Mr Steinberg

  37. Why, it is so low?
  (Sir Richard Mottram) What we are talking about is communicating within an industry which has many different characteristics, with people who are and are not involved in areas where they think they can apply these lessons. In my view, you keep plugging away consistently. The key thing to do, in my view, is to have a coherent story and to keep telling it for a reasonable amount of time and incentivise the various players in the industry to be interested in what we are pumping out.

  38. You have been doing this since 1994, in terms of initiatives.
  (Sir Richard Mottram) Before 1994.

  39. That is even worse, that is worse.
  (Sir Richard Mottram) Absolutely, yes.

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