Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60 - 73)



  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.


  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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