Examination of Witnesses (Questions 60
- 73)
WEDNESDAY 14 FEBRUARY 2001
SIR RICHARD
MOTTRAM, KCB, MR
PETER GERSHON,
CBE AND MR
DERYK EKE
60. I wish you the best of luck. If you succeed
you will get some other title at the end of your name, as well
as at the beginning.
(Sir Richard Mottram) Could I have a promise on that,
Chairman?
Chairman: Well, if Mr Steinberg is the future
Prime Minister!
Mr Steinberg: Mr Steinberg is lucky to get on
this Committee, let alone anything else.
Mr Love
61. Sir Richard, you are an old-hand, both at
this Committee and in the Civil Service. I am always minded to
ask you what odds you would give me in a few years' time that
this Committee will not be confronted by a similar report to this
one? What do you think it is that makes this report different
from all of the previous reports that we have had at Public Accounts
Committees? Why should we take this one more seriously than the
others we have had in the past?
(Sir Richard Mottram) What the report sets out is
both a strategy that involves all of the potential players in
producing the result—I can explain that in more detail—as
well as some very good best practice, which I think everyone who
reads this report would recognise as best practice. If you went
through all of the reports, I am not suggesting that we do that;
Latham was trying to feel for a better approach to the industry;
Lavene recognised there were big problems in the way in which
the public sector was procuring in relation to construction; Egan
brought in the client I mentioned. This report is a coherent story.
If people followed it both in terms of the strategy and in terms
of the detailed policies and in terms of the importance of measurement
I think in four or five years' time we could certainly have a
discussion where there were still projects going wrong in the
public sector, of course, but we would have a discussion which
would still show some progress.
62. Let me ask you on that, take the example
of the Construction Industry Board that Mr Steinberg raised earlier,
what percentage of the construction industry is involved in that?
(Sir Richard Mottram) I will have to give you the
answer, but I can illustrate it by saying it covers virtually
every element of the construction industry. I will give you an
answer, I will think about how I can best give you that answer[3].
63. The reason I ask that is because it is always
one of the things that is always a difficulty and we talk about
it. I was at the sharp end of industry, but it was a very long
time ago, when people mentioned the nine per cent figure I did
not laugh at that. I can tell you that that is a significant improvement
than what used to happen. We never heard of governance when I
was in the construction industry. Things are changing and improving.
The thing that has always bedevilled the industry is that the
large companies that deal directly with government are involved
and understand the industry but further down the field the contact
begins to disappear. Therefore, what is critically important in
any of these boards or initiatives is that you involve the whole
of the industry.
(Sir Richard Mottram) Absolutely. I have a nice little
picture here of which organisations are represented on the Construction
Industry Board. Following on from your point, the big players
are all there, the consultants and the specialists are all there,
the construction products people are all there, but also the Construction
Industry Employer's Council, which covers, really, what I call
the small-scale end of the market, like the Federation of Master
Builders, and so on, they are there as well. If I send you this
diagram you will see that the aim is to cover the whole industry,
big and small, and all of the ancillaries that go with it. We
are talking about the industry in its widest definition, not simply
the construction component. We are talking about trying to pull
all that together.
64. Let me press you on the specific issue,
that is the issue of training, which always bedevilled the construction
industry. I am sure Mr Steinberg remembers this from his local
authority days. Local authorities, and I expect to a limited extent,
central government perform the role of training people. The minute
they became plumbers or carpenters they were off. We have trained
industry on behalf of the private sector, whose only thought in
any of this was to big-up the wages in order to be able to get
the skilled labour. Have we moved on any further? Does the industry
recognise that it is in its own interest to perform a role and
be able to train people? Is that something that is getting through
to the majority?
(Sir Richard Mottram) I would rather give you a piece
of advice on that, it is not my department. I will come back to
you with a piece of advice, having consulted my colleagues on
how they feel that the industry is changing in that respect[4].
65. Let me take you on to the other side of
the equation, which is, of course, construction management. We
spend almost all of our time on this Committee looking at reports
that tell us that the public sector management of construction
projects is not what it should be. We have passed lots of advice
and that advice goes through, but we still have further reports.
What optimism can you share with us that the public sector is
beginning to get its management of these types of projects better?
(Sir Richard Mottram) I think the answer to that,
is, perhaps I should saying something and Peter might comment,
the answer to that is at the level of central government, that
is government departments and next steps agencies, there is a
much stronger focus now on applying the best practice that is
in this report and, for example, thinking about the project sponsor
role, thinking about what the client has to do, thinking about
ensuring the project management arrangements are effective, thinking
about the type of contractor. The only way, however, that those
sort of philosophical things will work is if there is buy-in at
the top so that the message is coming down that this is what is
expected. There is now much more effective coordination at central
government level, working with Peter. The lessons are being disseminated
and the people who are going to do the job and are being trained
in how to do it. That is a process which, in my view, is positive.
We, of course, have not completed that. We have a much stronger
sense now in my department on the importance of project management,
training project managers. We have a much better procurement expertise
that we have developed, et cetera. Across government as a whole
Peter is trying to disseminate the lessons. As we touched on quite
early on, we also need to think about non-departmental public
bodies, the Environment Agency in my case, the Highways Agency.
They too are seized of this agenda. The people we do not have
to worry about are the people who only do a procurement every
so often. The great danger there is they just walk in and do it,
according to some often ten years out of date idea about how to
do it. There are issues there, again, about communicating all
around the system about what the best practice is and requiring
people to follow it. I am strongly in favour of having best practice
and requiring all of us to follow it. If we end up appearing before
your Committee on the basis that we did not follow it, then you
can be pretty tough on us and say, "Why did you not follow
it when it was there". I do not know whether Peter wants
to add anything.
66. I am intrigued to ask you, so I will, since
I have the opportunity, what role do you think capital expenditure
constraints play in this process? Let me tell you what I mean
by that, it has appeared to me in previous reports we have had
before this Committee that before departments may well be subject
to the limitation on capital expenditure their pet project happens
to come in well within that capital expenditure. Of course, the
minute the fist brick is laid suddenly you get an enormous increase
in the cost of that particular project. If you believe that that
is a phenomenon that happens in the public sector to get around
those constraints, what action are you taking to deal with that?
What sanctions have you got against those who are found to be
practising it?
(Sir Richard Mottram) Is that addressed to me?
67. I am look at you, it could be either one
of you.
(Sir Richard Mottram) Shall I start on that and then
pass it over to Peter. I agree with you, I think that there have
been three serious weaknesses in the way in which we manage public
expenditure. One was that it was managed annually. You can see
the effects of that very clearly. Having moved from, if I might
just say, a department that did not plan its budget annually,
the Ministry of Defence, to one which was full of organisations,
that were absolutely required to plan annually and they often
found their budget was cut halfway through the year, you discovered
just how inefficient that system was. The changes that have now
been made, putting public expenditure on a three year basis, and
some of the 10 year planning we now have, for example, in relation
to transport in my department, these are really fundamental changes
in terms of getting better results. Secondly, I do agree with
you, that there is a great danger in the processes inside departments
that the key is to get a foot in the door. Really the only way
you can get away from that is if you have vigilance, which actually
requires individual accounting officers to be held to account
for whether the projects that are coming forward on-stream can
be afforded on a value-for-money basis. There is a danger that
the system has been incentivised, with people having a foot in
the door. You have to get proper budgeting and proper business
planning.
68. All of this is leading to what I wanted
to ask you about, although you are very wise in not wanting to
predict how the economy will go, there are two things that we
roughly know, one is that growth is likely to continue on roughly
a trend basis, but more importantly there is going to be a significant
increase in the coming next couple of years in capital expenditure
by government. That is going to lead to all sorts of constraints
that are already there within the construction industry, but are
going to come much, much more severe and the very low profitability
that has existed in the construction industry for the last few
years may not continue in those circumstances. The question I
want to ask you, both you and Mr Gershon, is, you will be aware
of that phenomenon that is coming, what action are you taking
now to try and deal with some of the constraints that the public
sector is going to have to work under with a vast increase in
expenditure over the next couple of years?
(Sir Richard Mottram) At a general level the key thing
is to have a dialogue with the industry about how your plans are
going to unfold and to do that dialogue over a reasonable period
of time. If we have such a dialogue and we have such an understanding
they can manage their capacity much more effectively, than if
they are operating under ignorance. If you are on the sort of
curve of increased investment we plan, you can have that dialogue.
You can have better planning. I do not myself think that in relation
to the area that I am responsible for that it is impossible to
imagine we can build up on a value-for-money basis. We are certainly
reasonably confident that we can. The message of it is, do it
consistently, plan over a reasonable period of time, do not keep
changing it and have a dialogue. That is what we are trying to
do with the various sectors that we deal with. I do not think
there is a magic solution. If you look at the relationship between
demand and supply for the labour in the industry that must be
very tight, as we were discussing before.
69. What advice, Mr Gershon, are you giving
different departments on how they should deal with their construction
industry suppliers in what is going to be a steep increase in
their expenditure?
(Mr Gershon) There are a number of aspects to that.
I think the key one is that if we move ahead and implement the
type of things that this report is giving positive support to
that we will help to drive waste and inefficiency out of these
projects, which will free up a significant amount of resources
in the industry to cope with the increase in spend. That is, I
think, at the heart of a lot of what both Sir Richard's department
and my office is trying to do. If we behave differently as customers
of the industry and treat them in a different way we can take
an enormous amount of waste and inefficiency out of the process.
That frees up resource which can then be used on other projects.
Mr Love: I wish you both well. I hope we see
you less often in the future.
Chairman
70. We always wish of that of Sir Richard Mottram
and it never turns out to be true.
(Sir Richard Mottram) I think that is a prediction
of my demise.
71. Any other points that either of you want
to raise?
(Sir Richard Mottram) If I can just add one point
to what we were discussing before, one of the biggest frustrations
I have in my job in dealing with some areas of the private sector
industry is their own extremely poor quality project management.
The client role can certainly be improved very much, as this report
describes. Project management in the private sector is in my experience
extremely poor. This is not just a public sector phenomenon, it
is not very good in the private sector either. It is a big, big
challenge and it is a serious weakness.
72. Okay. I have two questions I would like
a written note on, Sir Richard. The first one, I made a comment
at the beginning about my view on some of the partnership arrangements
between government and industry, and concern about them being
overly cosy. At the beginning of the report there is a foreword
by Sir Michael Latham, who is an ex-member of this Committee and
a very wise man, he says, "There are still too many clients,
consultants and constructors who see partnering as an alien or
threatening process". You will know from my discussions when
you were at the MoD my concern about over-cosiness between government
and industry. Can you do us a note on how you protect against
that and how you deal with that issue of partnership leading to
too comfortable a relationship[5].
There were clear benefits in terms of learning and information
transmission, and so on, and understanding partnership. I am concerned
that every solution carries a subsequent problem—this is
one here. I do not want to embarrass Mr Gershon, he is clearly
a very important part of this process, you know I am big believer
in leadership, you must have been involved in the selection of
Mr Gershon.
(Sir Richard Mottram) Not directly, no. If I had been
I would have been delighted. I think he was selected by open competition.
73. I would like a note on the selection mechanism.
(Sir Richard Mottram) We will give you that[6].
Chairman: I would be very grateful. Thank you
very much for coming.
3 See evidence, Appendix 2, page 18 (PAC 173). Back
4
See evidence, Appendix 2, page 18 (PAC 173). Back
5
Note: See Evidence, Appendix 1, page 11 (PAC 2000-2001/122). Back
6
Note: See (PAC 2000-2001/132) not printed. Back
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