Examination of Witnesses (Questions 120-139)
MONDAY 30 APRIL 2001
MR KEVIN
TEBBIT, CMG AND
MR IAN
ANDREWS, CBE
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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