Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 140-159)



  140. So that is all right then?
  (Mr Tebbit) No, it is not all right.

  141. So what did you do about it?
  (Mr Andrews) There is a clear obligation on property management staff to satisfy themselves that work has been done, to specify requirements clearly, and we have processes for doing that. We have in this area a lot of very experienced people, experienced contractors working for us, and in some cases they have not been following the letter of our guidance and our procedures. That is not to say that they were necessarily acting irresponsibly but because they were not following the procedures we could not demonstrate that the risk of fraud in that particular area had been eliminated, so they were not following the best practice. We have reinforced our ways of training them, we have redefined the processes, we have issued better guidance so that we can have more confidence that they are following these procedures. We have also introduced through our blue skies inspections and our New Works Reviews a risk targeted approach which takes a much closer view of individual transactions and, therefore, that increases the possibility that we will be able to provide evidence of real fraud and malpractice.

  142. I do understand that and I welcome much of what you have said but I think you can perhaps understand our anxiety that all of this seems to have gone on and nobody ever got the bill for it. There seems to have been no penalty whatsoever. I wonder if I can turn to something else. I am not clear about whether or not some of the proposals being made here are not over-complex and whether or not they are actually going to cost more than they are going to save. It is possible, presumably, to stop any possibility of fraud whatsoever by enormous effort. What I am not clear about is which of the identified solutions are likely to be most and which least cost effective?
  (Mr Tebbit) You are absolutely right. As I said at the beginning, that is the dilemma we face. We have proof of around £2.5 million or so a year and yet we have a risk figure here of £135 million. How much should you actually spend and how much effort is it sensible to expend in tightening up? We have taken the view that the procedural changes that we are making are absolutely essential and we are obviously spending some money on this and a lot of resources of time and people on this. We certainly have not reached the point where we are saying that this has become too expensive. The key thing is to ensure that we have got the risks in the right order and have the right risk management model. It is that which will give us a more efficient way of operating. So we will not need, as it were, to do 100 per cent checks, that will be pointless, but we will know better where it is we should be checking. As I said before, the key to the answer here is to move to a simpler system of prime contracting rather than continuing trying to perfect the existing one. But we have to, as it were, do both because we cannot switch overnight.

  143. It seems to me that deterrence should play an important part in this and two elements of deterrence are, firstly, that the penalties are appropriate and, secondly, that there is a high risk of detection. I wonder if I can just come back to this question of the hotline. In my experience there have been frequently members of staff or people in an organisation who knew something was going on that was untoward and were willing to step forward anonymously or to volunteer that information anonymously where they were not prepared to go to their managers or be identified as a snitch or what have you. I really am surprised, given the size of your organisation, at the very, very low number of calls you say you have had on this line. Can I ask have you compared that with anyone else's hotline? What sort of benchmarking have you done on that?
  (Mr Tebbit) I am not aware of the answer to that but I will certainly find it for you[2]. I am all the while trying to separate out the total numbers from the ones that are referring to this particular area of property fraud. You are quite right, the numbers do not seem that high to me.

  144. You have identified ways of publicising it effectively, being on pens.
  (Mr Tebbit) That is just one way.

  145. The pens, which is helpful, and the speech you made. Far be it for me to suggest that you are not the most eloquent rabble rouser in the country but a speech from somebody at your level is not necessarily going to percolate all the way down.
  (Mr Tebbit) That was just one example. We did it when we were rolling out the road show. There has been a Fraud Road show that goes around with the Ministry of Defence Police in the lead. It looks good because they have got the uniforms and it makes a bit of a difference, a bit of an impact. My speech was to launch the Road show, it was not a free standing event. Can I also say that we also have a Fraud Alert Bulletin which comes out every few months. Is it three monthly now?
  (Mr Andrews) Every six months.
  (Mr Tebbit) That is distributed to all of the staff concerned in all of the budget areas. This is an example: this was issue number one of November 2000. The next one is just about to come out which, again, is circulated to everybody. We are not just relying on—

  146. It is not very snappy though, the bulletin, from what I can see. If I walked into one of your establishments would I be able to see somewhere a poster up saying "Call Kevin if you want to report such and such"?
  (Mr Tebbit) You will indeed see that. You will also see it on the computer mouse mats.

  147. In that case it is even more surprising that you only got 20 calls.
  (Mr Tebbit) It is not the only method. It may well also be the case that by and large people do trust their line management in the organisation and will simply pass it on to their line manager in the normal way.
  (Mr Andrews) If I might add to that. Although earlier we were talking about the calls on the Fraud Hotline at 22, the Defence Fraud Analysis Unit has received some 90 approaches during that same period, individual members of staff approaching them direct with their concerns. There are a number of possible routes.

  148. I did not pick that up. I think it would be helpful, Chairman, to get something back indicating how this compares with similar hotlines or help lines other people run.
  (Mr Tebbit) I think we do in the MoD have a culture of trust internally. Most people would not feel that their line manager was somebody to avoid and, therefore, use the hotline, most people[3].

  149. Other Departments presumably would say the same thing. Do you provide any incentives for people who report to the hotline? Crimestoppers will pay people for information received that actually results in a saving to the public purse.
  (Mr Tebbit) We have not quite got to that stage yet, no.

  150. Why not?
  (Mr Tebbit) It is certainly something we could consider but to pay people for doing their job, remember these are people working within the Ministry of Defence, it is already their duty to report any suspicions. It is set out in their terms and conditions of service, it is set out in our policy statement, so they are only doing their job.

  Mr Davidson: Well, there is quite often a situation where "is this my job to report something that these other people are doing that I think is untoward?" It is a question of the balance of risk and reward and very often an incentive might well push people to report, not in their own section necessarily but something else they have seen. Again, if you have not compared what has made hotlines or help lines work elsewhere this is perhaps an area that ought to be explored. I wonder if I can turn to the question of penalties—

Mr Williams

  151. Before you leave that, something you had not considered, is there any possibility a pilot study or experiment could be carried out to see if it produced any results?
  (Mr Tebbit) I would not want to try to set my face against anything, Chairman. When we have a policy which simply says that it is the duty of all civilians and Service members of the Department to ensure that business is carried out in a way that conforms to the highest standards and to report any suspicion of fraud, that is part of their job. I am very, very reluctant to consider rewarding somebody for doing something which is already within their terms of reference and part of their duties. It is not the same as a member of the public who is invited to look at that.

  Mr Davidson: I understand that.

Mr Williams

  152. Except that you do not have evidence to see if they are obeying that rule or not. A pilot study would show it did create a difference. Imposing a duty on someone does not necessarily mean it is actually fulfilled, does it?
  (Mr Tebbit) No, but I must say I would feel very unhappy about needing to pay people to do their duty.

Mr Davidson

  153. I understand your point, I just wonder whether or not when you do the benchmarking about the calls that other people receive you might check whether or not any of them have found this approach is helpful or not.
  (Mr Tebbit) Yes[4].

  154. I wonder if I can turn to the question of penalties. Can I just clarify how many contractors have been put off your tender list as a result of fraud or sharp practice or anything similar? Is it a large number?
  (Mr Tebbit) What, how many companies we have dropped from the list?

  155. Yes.
  (Mr Tebbit) I would have to check that. The first stage of doing that, of course, is to have a good record and that is what we are putting together to make sure we have a good computer record of everybody we are dealing with—it perhaps should be a straight forward thing but in a Department as large as ours it has not been straight forward—so everybody who is about to let a contract has visibility of others engaged. We certainly have that ability now. I would need to give you an answer on how many we have dropped. We have obviously dropped some.

  156. Can you give me a feel for it?
  (Mr Tebbit) Can I ask Mr Andrews?

  157. Do people never get off contract tender lists unless they die? Is it a regular retention?
  (Mr Andrews) No. Certainly our existing Establishment Works Consultants and Works Service Management contracts would normally be re-competed every three to five years. We are moving, as you have heard, to a new prime contracting regime with much longer relations. As far as eliminating a particular company from a tender list on the basis of past practice, there is an issue of proof. One has to have convincing conclusive evidence that there is something which would disbar them from being considered in the future and you have heard how difficult it can be to get that. As I mentioned earlier, now that we have put in place, as recommended by the NAO, a very clear articulation of what we expect from our contractors, we have been able to say that only those contractors who are able to demonstrate that they have embraced wholeheartedly the Department's policies on fraud and deterrence and are committed to and have put in place the processes to prevent it, will be considered in future for contracts.

  158. I used to work in an organisation where we were involved in filling in applications for money with Government and whatever they wanted people to say, we said it, whether or not we did it was a completely different matter. Of course with my organisation we did but I did understand that there were others who were less reputable. The fact they signed up wholly and completely to that does not necessarily mean they were doing it. What I was interested in was the point about sharp practice. It is strange but I understand that is not fraud and it is not necessarily illegal, it has to do with quality. I was not satisfied from reading this. Apparently on the question of fraud actually quality control on jobs, which is different, was satisfactory. I saw very little in here that would lead me to believe any contractor could get put off the list for bad workmanship or slipshod workmanship or poor materials or what have you. Am I misunderstanding this?
  (Mr Tebbit) I think you are putting your finger very much on the point. I am much more concerned, frankly, about that than I am about real fraud. It is the quality control that one would expect in the first instance to be enforced by consultants doing their job and by property managers making sure that all the checking takes place, rather than fraud. Mr Andrews would say that prime contracting will operate first in that level of ensuring we get the quality. If we bulk contracts up into big prime contracts we are much more likely to get the sort of A teams of the industry working on the contracts because they are worth so much to them than by having small contracts where we do not use our power in the market effectively enough. That is another area, quite apart from the detailed controls, where prime contracting is likely to give us better service.

  159. It is certainly not my understanding of what has happened in a number of construction contracts where a big firm gets this and because there are very few firms who have the capacity to undertake that scale of work they can then at a lower level on occasions get away with slipshod workmanship because the only penalty is sacking them off the job and that would be disproportionate to the degree of sharp practice that they have been employing. In many ways you are weaker, you are then a prisoner of the main contractor?
  (Mr Tebbit) I must say that is not the impression we get from talking to the industry and talking to other big organisations that do the same thing. It is an interesting comment of yours and it is certainly not the advice we have been getting and it is not the experience of big organisations that we have talked to.
  (Mr Andrews) I would say as well that we do not simply take their word for it. The whole approach here is that we must be an intelligent customer. We will evaluate the proposals and the processes they are putting forward. I think it is also true to say that our prime contracting initiative is recognised as being at the forefront of what the Government, the DETR, are doing to reform the construction industry. There are a whole lot of novel aspects to the initiative which are new to clients and also new to parts of the industry. What we want to create, rather than having contractors who simply pull together groups of workers who they may never have worked with before on a particular job, we want to employ a prime contractor and his supply chain, an integrated team in which we can have confidence, and they work with us as intelligent customers with open books so that we are constantly working with them against their incentivised pricing systems to make sure that we are getting value for money. It is a holistic approach.
  (Mr Tebbit) I think this Committee had a hearing with Richard Mottram and Peter Gershon talking about that very system and that is what we are talking about applying to our own—

2   Note by Witness: See Evidence, Appendix 1, pages 25 to 26 (PAC 00-01/169). Back

3   Note by Witness: See Evidence, Appendix 1, pages 25 to 26, (PAC 00-01/169). Back

4   Note by Witness: See Evidence, Appendix 1, pages 25 to 26 (PAC 00-01/169). Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 12 September 2001