Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 120-139)



  120. The system is becoming even dafter than the original one.
  (Mr Tebbit) No, that will no longer be of interest to him because it costs him money if he is having to replace more windows than are specified in the contract. That is what we are moving to, prime contracting under which there will be a requirement to keep the windows properly repaired rather than individual nitty bitty discussions on each broken window.
  (Mr Andrews) And it will be a much simpler transaction because under prime contracting the user who becomes aware that the window is broken will report direct to a help desk run by the prime contractor. He then owns the problem and will directly sort it out. A lot of these interfaces simply just disappear.

  121. Okay.
  (Mr Tebbit) I was hoping to clarify. You chose the window analogy and I have been trying to carry it through into how it will work.

  122. Let us not clarify it any more or it will take my whole 15 minutes to repair one window. I want to turn to figure 9b. Here we see the jobs categorised in value.
  (Mr Tebbit) Yes.

  123. It does not matter what value the job is categorised in, there is a huge, or there was—I do not know whether it has changed that is what I am going to ask—a huge possibility that fraud could take place in any one of those categories from the most expensive job to the putting in of a window. Fraud could take place, is that right?
  (Mr Tebbit) Yes. I think this is a sort of generic statement but this is an area where there is a possible way of perpetrating fraud. I do not think it is a particular statement about the Ministry of Defence, it is just a possible way of doing it.

  124. Yes. All I am saying is for every single sort of type of job that could be carried out on a military base there was a risk that fraud could take place.
  (Mr Tebbit) Yes. This would be true of any organisation operating this sort of system.

  125. No, it would not.
  (Mr Tebbit) Operating this sort of system.

  126. Operating this sort of system, perhaps, but in any other establishment, for example take local government, you would not have fraud taking place or possible to take place on any sort of maintenance job that was being done. It just would not happen, there are not the procedures there for it to be allowed to happen. Yet here it does not matter what job was being done there was a risk of fraud taking place.
  (Mr Tebbit) Any of these things can happen anywhere.

  127. I do not think they could.
  (Mr Tebbit) Yes, they can.

  128. I am sorry, I do not think they could.
  (Mr Tebbit) Perhaps I should ask Mr Andrews to comment on this because he is the expert. It seemed to me these are generic statements about how fraud can occur.

  129. With your system?
  (Mr Andrews) No. We would not disagree. In fact, we agree with the NAO that in these different areas potentially these things could happen. Therefore, what we must do is ensure we have controls which minimise the possibility of them happening. We would also agree with the NAO that the sorts of measures they have outlined in the report would effectively reduce the risk of those things happening. For the most part our existing procedures are broadly consistent with the NAO's suggestions. Where they have proposed improvements we have embraced those. We have acknowledged that not all our controls, although designed effectively and reflected in our procedures, were being operated properly and we have taken steps through training and through providing guidance and raising awareness to improve the effectiveness with which those procedures are carried out. That is all about increasing our confidence and reducing the level of expenditure which is perceived to be at risk. I believe that is a statement about the sorts of things that could happen and, therefore, you have to design your processes, whether in local government or national government or elsewhere, to ensure that you minimise the risk of them actually happening.

  130. One of the reasons I asked the very first question—how many establishments you have and you said 200—was has it ever been considered—and is this a policy matter so therefore you will not answer it—that a better system might well have been to have direct labour organisations on each of the 212 establishments where they have a budget to repair? Nobody is making a profit and the jobs are being done on behalf of the MoD by the MoD themselves. Is that a policy decision?
  (Mr Tebbit) It is certainly not where we are. Where we are, is moving to a system of prime contracting which would have the same result were it done by a private sector contractor rather than a direct labour organisation.

  131. It would not have the same result. At the end of the day if you have contractors and subcontractors coming in to do a job, they are there to make a profit. Now I am not saying a direct labour organisation does not make a profit but if it does make a profit it is then put back into the organisation itself. There is a hell of a difference.
  (Mr Tebbit) I have to say, unfortunately, that having a direct labour organisation does not necessarily protect an organisation against fraud, it just becomes a different type of fraud that can be perpetrated. Materials still have to be procured. Can I just say positively, what we are doing is moving towards a system of prime contracting so that all of these detailed arrangements we currently have with something like 90 different Works Service Managers, 90 different Establishment Work Consultants, would be grouped together, regionally, throughout the country, in a much smaller number of prime contracts, possibly five, as low as that, managed in modern methods, analogous to best practice in the private sector through this prime contracting arrangement. That is where we are going rather than direct labour.

  132. Okay. Let us leave that point and go on to page 41 and have a look at paragraphs 3.22 to 3.24. Again, when I read this it seems that even when jobs are costed it appears the jobs which have been costed were rarely accurate and, unless I am misreading the report, only 35 per cent of the high transaction jobs were provided with a professional estimate. So, again, incompetence really, is it not?
  (Mr Tebbit) There are two ways of providing estimates. One is getting a specific estimate from the Establishment Work Consultant or another one is to refer to the so-called standard costing system which is used in the building industry, I understand, the so-called elemental cost database. You can use one or the other, I do not think it matters which provided one is proactive in making sure that you have got a good reference point. You are right that we have not been making enough use of our consultants and we are requiring them to do estimating to the level required. I did mention before that our New Works Reviews and our blue skies reviews are revisiting work and remeasuring work to make sure these jobs are done properly. This is under the existing system, not under prime contracting where, as I say, all this would be set at the outset as an agreement rather than having to be managed all the way along.

  133. Finally, I have not got anywhere near where I wanted but never mind, over the page, 3.25, you will see here, as I say, the way the contracts were inaccurate. Then we have a look and see the system that was used again was just open to abuse, totally open to abuse. For example, in section A over pricing so not to pay extra administration costs at a later date. That seems absurd. Somebody priced the job in excess of what it was going to cost in case perhaps they might have had to pay administration costs at a later date. That seems absurd. Then B, asking subcontractors to name the price of the job. That is just like printing money.
  (Mr Tebbit) I agree. You are absolutely right. In these cases the Works Services Managers were simply abrogating their responsibility, I totally agree.

  134. In C, the contractor comes along and says "that job cost me x amount more than I thought it would cost" and it was just paid without any sort of check. People should have lost their jobs, should they not?
  (Mr Tebbit) I agree with you that this is absolutely unacceptable. We have changed the process. As I say, MOD Form 1097 now requires estimates, it does not give these limits of expenditure. When an increase in the limit of expenditure is asked for on a piece of work that is ongoing then the managers are required to get the professional advice of the Establishment Work Consultant and that is being reinforced in the Best Practice Guidelines. You are absolutely right, it is not good enough.

  Mr Steinberg: Okay. I will finish there.

Mr Williams

  135. Was anyone disciplined at all for any of these failures that Mr Steinberg has just referred to in 3.25?
  (Mr Tebbit) The answer to that I think is no, nobody has actually been disciplined as a result of this. Partly because it has not been possible to pin down specifics in a way which would enable us to do so and partly because, in some cases, people would argue that they are still doing their job correctly because they know how to do it well, but they have not been applying the rules properly. I am not aware that there have been disciplinary cases raised as a result of this.

  Mr Williams: There is not much incentive for people to observe the rules properly if they know there is going to be no punishment.

  Mr Leigh: No prosecutions and no discipline.

Mr Williams

  136. Exactly.
  (Mr Tebbit) Throughout this discussion it has been slightly tricky because I have been having to try to describe two different things. One is tightening up on the existing system, the other is introducing a more radical system as a whole based on prime contracting. What we are doing is shoring up the existing system while at the same time moving to a completely new one, which has caused a bit of difficulty in getting across what we are trying to achieve here. You are quite right that we have not disciplined anybody as a result of the report from the NAO.

Mr Davidson

  137. Why?
  (Mr Tebbit) Because, firstly, the report was not there to achieve that. This was a report to point up best practice rather than to try to build up disciplinary cases against individuals.

  138. Sorry. When you got this surely somebody must have said "goodness me, we did not realise this, we must go off and do something about this"? And did you?
  (Mr Tebbit) We certainly did do something about it. We have a huge action programme. I keep waving this thing.

  139. In terms of the individuals who were misbehaving?
  (Mr Tebbit) They were not necessarily misbehaving, they were not applying the rules and procedures as fully as they should have done.

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