Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. That is only one part of the change.
  (Ms Davies) Would it help if I gave some clarification here as advisers? We were actually appointed during this period that you are referring to but what had happened, up until that point, as far as we understood it, was there had been quite a lot of market consultation with regard to the model that was envisaged and the vision that RA had in mind. It was clear from that model that RA was looking for a controlling interest, they were looking for influence. What then became clear over several months with our support and with the legal advisers' input was that this controlling interest could constitute a change to the entity such that it would create a public body which would provide its own limitations and that was not what RA was seeking to do. RA then went to the market place, again, as you say, because it was seen as a substantive change to the procurement exercise, so as to make sure that the playing field was as level as it ought to be in these circumstances. It went to the market place again and no new bidders joined the competition at that stage.

  41. Your company was brought in at the final stages of the procurement, was it not?
  (Ms Davies) Yes.

  42. What was your biggest success?
  (Ms Davies) I think the biggest success was being able to help RA create a vehicle through which it could realise the prospects that it was envisaging, the sort of influence that it was envisaging, without it stifling the relationship. There was a lot of nervousness in the system, a lot of anxiety over wanting to maintain and retain control. What we were able to do was to demonstrate that you can do that in a number of ways, it does not actually have to stifle the relationship.

  43. How helpful would it have been to have brought your company in two years before?
  (Ms Davies) I suppose one of the things that we might have been able to identify was the limitations that a controlling interest might actually bring to bear and, therefore, maybe some of the delay could have been avoided in that sense certainly.

  44. If I can just go back to what we were talking about that you illuminated a few moments ago, that is the changes in paragraphs 2.22 and 2.24 which concern the full specification material changes. We know that there was a decision to drop a minority stake, were there other changes?
  (Ms Davies) No, there was no other significant change that I am aware of.

  45. That is reassuring. By May 1997 you knew there was a 12 month delay on what had then been going for 25 months, I think. Clearly, of course, the bomb disrupted things fairly severely but a budget had been fixed originally of half a million pounds. At what stage had you spent this level of money? While you are gleaning that information, can I follow that up by saying I am interested to know when and at what level you revised the budget and how you monitored it, or your predecessor as it happened?
  (Mr de Grouchy) What we do not have in front of us is a timetable as to exactly when that initial estimate of £500,000 was exhausted. What is also clear from the NAO's Report is that the cost of the whole procurement increased during its duration. For example, the total cost is specified there as £3.4 million, of which about £2 million was for external advisers. I think there are a number of points made in the report which we would recognise about the need within a budget of that kind to know what the cost and timescale of each component is. I think it is fair to say that there are some lessons which the Agency has learned from that and if you were to ask us about some of our budgetary control systems now and how we manage our projects, the results in a report of this kind might read a little differently. Nonetheless, we are confident that during the time of the project under the management structure which I have described, which as I said included three independent members, that expenditure was monitored by that group and each increase had to be accounted for in terms of the rates of the staff who were employed in the procurement project and the time they spent on those activities and, indeed, the activities on which they were spent.

  46. The three independent members, where did they come from?
  (Mr de Grouchy) One was from the CCTA. One was an individual who had managed a rather similar project in the public sector at English Heritage.

  47. Were they full-time members?
  (Mr de Grouchy) They were not full-time members, they were members who were appointed to the board, who saw the papers of the board meetings and attended the board.
  (Mr Hendon) They were non-executives.
  (Mr de Grouchy) The third was—I do not know.

  48. Did they have problems reviewing the documents quickly, which is the second point down causing a delay?
  (Mr de Grouchy) I do not believe that it was their problem in reviewing the documents. I think the problem, in so far as there was an issue there, was in providing them with the documentation on which to make the decisions. Again, there is a lesson we have learned about how much detail you should put into that review process. In implementing our project management system I think it is true to say that we may have got somewhat bogged down in the detail in trying to maintain the utmost control of the project which may have been counterproductive in terms of how the timescales operated.

  49. Mr Topp, you have got four contracts in foreign countries: Russia, Greece, Egypt and India. Can you divulge what they are worth?
  (Mr Topp) Gosh, I am trying to remember. The Indian one was—

  50. I am just looking for a total figure. Is it millions?
  (Mr Topp) It is probably about £1.5 million.

  51. And how are the costs and the profits split?
  (Mr Topp) Do you mean what the profit is?

  52. No. If there is a profit I am very pleased to hear it. Is it split with the Agency?
  (Mr Topp) Yes.

  53. It is?
  (Mr Topp) A profit would be split with the Agency. The losses are borne within RSI by CMG.

  54. And the profit split is what?
  (Mr Topp) In proportion to the shareholding.

  55. Fine.
  (Mr Topp) It is all a bit more complicated than that but that is the principle of it.
  (Mr Hendon) Can I just add, Mr Griffiths, if RA staff are used in carrying out one of these contracts then they are repaid by the company in the same way that CMG staff are paid, so the costs of what we contribute to any work is covered.

  Mr Griffiths: I hope this is going to be a good news story.

Mr Williams

  56. Thank you. Looking at figure 15 on page 33, in the first six months in the international consultancy a loss of £13,000 was made. That was quite understandable in the early stage. In the following year a further loss of £128,000, ten times as much, was made. Can you give us a bit of background to this situation? We understand that there would be the initial costs of penetrating the markets and so on, explain the build up of the costs and how you see them developing from now?
  (Mr Topp) The main part of the costs is in the man time of the people involved in marketing, producing proposals. The typical timescale of these projects is after a certain amount of marketing we get an opportunity to bid for something and we have to produce a big proposal. That is unlikely to produce revenue earning work for six, nine, 12 months afterwards. Both India and Egypt did take a calender year which tends to involve a lot of discussions, negotiations, off and on during that period. There are a lot of costs. When the international business was set up the expectation was that we would make money out of licensing the IPR in the RA systems rather than making lots of monies out of consultancy work. We have now refocused the business so we are aiming to make money out of the consultancy work rather than just cover the costs. In recent months we have actually been month on month profitable in the international business. We have been doing a lot of work in Nigeria, which is not covered in this report at all, helping them with the auction of their 2G mobile licences.

  57. Do you feel the market opportunities are expanding?
  (Mr Topp) They are changing, I think. There are opportunities in things like auctions which were not there some years ago. It is a very difficult market because it is very fragmented. One of the things, for instance, that we have learned is that the RA in the UK has a particular set of functions but the equivalent organisations in each country tend to be set up on a rather different statutory basis, so they all do a slightly different mix of work. Systems that did ideally everything that the RA did would not actually match other countries' requirements particularly. A lot of developed countries have a good depth of knowledge themselves, have very good systems. In developing countries there are always problems in getting the funding, etc., long approval timescales. The work we did in Egypt was very well received and we have further agreement for an extension, but because the Government in Egypt has not been able to pass the legislation to put the telecommunications regulatory authority on a permanent basis they are handicapped in recruiting people and it is not worthwhile them getting more consultancy in which is hindering us picking up and doing more work there. It is that sort of thing that is making international business difficult.

  58. Mr Hendon, you said that the risk had been passed to your colleague, yet if I understood correctly in reply to Mr Griffiths the reality is since the benefits are reflected in the dividends, etc., etc., and that reflects capital share, in fact inevitably you still retain some of the risk and if there are losses you carry a share of the loss?
  (Mr Hendon) No, that is not the case. We do not carry a share of the loss. I think the only way that there is a risk that we might carry some of the loss is if the whole thing foundered and then in that case, of course, we would have to put in place something to replace it because we need to carry on managing the radio spectrum. I am satisfied that we have in our intelligent customer function sufficient people and sufficiently qualified people that we will be able to both engage with and manage any sort of business that is going to take over the IT provision. I do not believe that we do face any loss, in fact.

  59. Mr Topp, after this initial experience of it, would you describe your frame of mind today on the international side as less optimistic or more optimistic than when you entered into this project?
  (Mr Topp) I would say the same. When we went into it there was a lot of unknown but we could see a lot of potential. We are now in the position where we have explored some of the potential and found it wanting. On the other hand, we have identified other avenues connected with auctions, etc, which look very promising. We have some good opportunities.

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