Examination of Witnesses (Questions 140-159)|
MONDAY 30 APRIL 2001
TEBBIT, CMG AND
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.
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
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
(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,
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,
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
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
Mr Davidson: I understand that.
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.
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.
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?
(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 withit perhaps should
be a straight forward thing but in a Department as large as ours
it has not been straight forwardso 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
(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
Note by Witness: See Evidence, Appendix 1, pages 25 to
26, (PAC 00-01/169). Back
Note by Witness: See Evidence, Appendix 1, pages 25 to
26 (PAC 00-01/169). Back