Select Committee on Public Accounts Twenty-First Report

Examination of Witnesses (Questions 1-19)




  1. Good afternoon. Welcome to this meeting of the Committee on Public Accounts. This afternoon we welcome Mr Peter Gershon, the Chief Executive of the Office of Government Commerce, and his colleague, Mr Hugh Barrett, who is the Executive Director. They are responsible for initiatives to improve departments' performance as purchasers of professional services. Welcome.
  (Mr Gershon) Thank you, Chairman.

  2. Can I start with really a very simple, general direct question. Why, given the Civil Service employs over 3,000 specialists who provide professional advice and assistance, do departments need to spend £610 million a year on purchasing professional services?
  (Mr Gershon) I think there are a number of answers to that, Chairman. Firstly, I think the demand for specialist expertise in a number of areas exceeds the supply of skills that are available in-house, both in terms of quality and quantity. Secondly, in a number of areas I think it is not possible for a number of reasons for the Civil Service to retain experts who may have relevant expertise who are sought by departments to give advice in particular situations.

  3. Obviously. You are satisfied that figure of £610 million is justified, are you?
  (Mr Gershon) Clearly the report indicates that there is room for improvement in how that money is spent and there is opportunity to get better value for money for a number of areas.

  4. The Efficiency Unit's Scrutiny in 1994 recommended savings of £65 million a year in departments' use of external consultancy services but paragraph five suggests that seven years on these savings have not been achieved. Why has progress been so patchy?
  (Mr Gershon) I think there are a number of reasons for that. Firstly, I think in my own experience, Chairman, the private use of professional services is an area where there needs to be sustained focus. As you may be aware, I have only been in the Civil Service for the last 18 months when the OGC was created but, talking to various people who have been around since the time of the 1994 Report, my sense is that in some departments that focus waned over time. In a number of departments, as identified in the report, they did have sustained campaigns to follow through the actions from the 1994 Report. What we are about now is trying to rebuild a sustained focus, that will pay attention to this important area of public expenditure.

  5. Perhaps others may want to come back to the extent to which departments have taken this to heart. Can I ask you another question. Paragraph 2.10 shows that nearly a third of professional services contracts were awarded on the basis of single tender or through informal price tendering. How can you persuade departments to increase the number of contracts which they award competitively?
  (Mr Gershon) There are a number of actions that we are taking in conjunction with departments. Firstly, I think there is scope for increasing the range of framework agreements which make it easier for departments to procure services competitively, particularly when there are short timescales involved. For example, at the moment, although there is the SCAT arrangement, which includes certain categories of management consultancy, there are no comparable arrangements in place at government level for other categories of professional assistance, such as legal services, human resources and accountancy. We are looking to put in place framework agreements of that nature. Secondly, I am in discussion with departments about how we might improve the scope of controls within departments in a way that makes single tender action much harder to take. I think in some areas the delegations of authority probably make it too easy for single tender action to occur. I think there is general agreement now that we need to take steps so that much higher levels of approval should be sought where people believe there are special cases for taking single tender action. Clearly this is a matter of concern that we need to address. It is one of the constant features between the 1994 Report and the NAO Report that the percentage of single tender actions remains basically unchanged and we need to address it through the mechanisms that I have described to you.

  6. I am pleased you are not coming back with the excuse that competitive tendering is not appropriate for smaller contracts because, of course, as we know from the report, only 12 per cent of the contracts were under £10,000. Can you answer a question on the framework agreements which you have been dealing with so we will go straight into that. They do seem to offer a number of benefits, as you have said. What mechanisms are in place to enable departments to identify opportunities for combining common services, such as legal advice, which are suitable for purchasing through framework agreements? Are you satisfied, following on from what you said in answer to the last question, the departments are taking this seriously and moving this on?
  (Mr Gershon) I am satisfied there has been a lot of renewed attention on this area following the NAO Report and that has created the environment in which we are now having, as I said, very serious discussions with departments about how we can extend the range and the scope of both existing and proposed framework agreements which would enable us to get better discounts, for example, through techniques such as aggregation.

  7. Have you got any information on any additional price gains that you have made from the framework agreements?
  (Mr Gershon) If you take the SCAT arrangement as an example, the discounts there go up to about 20 per cent. In the management consultancy area, we are looking to have a refresh of the arrangements which should be in place by next March and I am hopeful that it will be possible in some areas to get better volume discount arrangements.

  8. Paragraph 2.17 refers to the considerable variation in the quality of departments' information on professional services, the amount of business awarded to different suppliers, their fee rates and quality of services delivered. Departments in responding to the NAO survey were also unable to allocate 43 per cent of their expenditure to any particular category of professional services. How can departments secure better deals from suppliers when they do not monitor such basic information to compare prices and the quality of service which they receive?
  (Mr Gershon) Firstly, I would like to point out that this issue about the quality of management information systems was identified in the review that I did for Ministers on the subject in 1999 and, ultimately, the way we fundamentally resolve this problem is as departments implement more modern financial and management information systems which, as a by-product, will allow this sort of information to be provided. Recognising that we had to do something in the short term to get a better handle on this problem, we have for the first time just concluded an analysis based on looking at the data that departments have provided us from their accounts payable files which, for the first time, does enable us at the government level to have a better picture of the total amount of government expenditure, which suppliers it has gone to and the broad areas of expenditure. That has recently been completed and we are now commencing a number of analyses to look at what is in the database. One of the things we will be doing is trying to do further analysis on the expenditure in the database on the whole area of professional services, and I hope that the results of that will be available by the end of December.

  9. But you have not said whether you are worried. You must have been worried about this figure of 43 per cent. How can they negotiate better deals when they simply have not got the information?
  (Mr Gershon) I would hope the data analysis work I have just referred to will give us a better handle. I think it will because we do now have better analysis of data based on accounts payable information at both departmental and government level, but when that analysis is completed in December—and I cannot say with confidence as to what we will be able do as a result of it—I think we will have better information than we currently have.

  10. The NAO Report suggests that there are significant financial savings to be made in the purchase of professional services. What are you doing to encourage departments to secure these savings?
  (Mr Gershon) Following the NAO Report we had a discussion with the departmental heads of procurement which resulted in a submission going forward to the OGC Supervisory Board which is chaired by the Chief Secretary and has about half the departmental permanent secretaries sitting on it to represent the departmental community, and that agreed an action plan as to how government collectively was going to take forward the implementation of the NAO recommendations. That action plan includes things like extending both the range and scope of framework agreements. It includes departments developing their action plans as to what they are going to do themselves, which we are going to monitor. My Supervisory Board has agreed that the whole situation is going to be reviewed again in terms of progress at the meeting it will hold in the summer of next year.

  11. Are you satisfied that the Civil Service has the level of expertise necessary in this field?
  (Mr Gershon) I think one of the areas the NAO Report has identified—and it reinforces a recommendation I made in my own 1999 review—is that there are areas of procurement where professional procurement staff can add considerable value. I think in a number of areas of procurement of professional services they have been done without the involvement of professionals who have got recognised qualifications in procurement. The NAO highlighted this, and part of what we will be looking for in the departmental action plans is the extent to which they propose to involve professional procurement staff in procurements of this nature in the future.

  12. The NAO Report also suggests that departments can make further savings of £15 million by more collaboration between departments to take advantage of volume discounts and by use of more appropriate forms of contract. What steps are you taking to encourage departments to do this?
  (Mr Gershon) Extending the range and scope of frameworks is one of them. We are going to have a number of discussions with the departmental heads of procurement as to what else we can do in terms of, for example, sharing informing between departments about fee rates. We will be drawing the attention of departments to reinforce the recommendations in the NAO Report that in some areas it is appropriate, for example, to look at some form of incentivisation basis, rather than just looking at hourly rates or looking at capped fee arrangements, to provide greater discipline and control in this area of spend.

  13. I think what worries the Committee is that this report was published in the early summer and has a great deal happened even since then?
  (Mr Gershon) I think a lot has happened since then. Firstly, we have been developing an action plan as to what we are going to do and getting the buy-in of all the departments to that action plan, launching the re-competition of the SCAT arrangements and now starting the planning for other framework agreements in areas such as legal services. We are beginning to look with the legal profession at developing a best practice code similar to the one the Treasury put in place with the Management Consultants' Association and the Institute of Management Consultants about how to get the best value out of using management consultants. We have just had the results of our data analysis and as I say, we are beginning to do further analysis on it to give us a better insight as to where the money is going. We are beginning to have dialogue with some of the key suppliers in this area, bringing together government's perception about the performance of suppliers. Clearly there is a lot to do and my view is that we have made a good start but the results of that will take some time to come through.

  14. You think you have made progress from when paragraph 3.4 was written. That refers to departments' inability to specify clearly what they want from the external experts, evidenced by often poor and conflicting terms of reference. What incentives, apart from what you have mentioned, are in place to encourage all departments to adopt good practice?
  (Mr Gershon) There are a number of documents setting out advice and guidance in this area. There is the code of best practice that has been agreed with the Management Consultants' Association and the Institute of Management Consultants. Particularly in the larger, more complex procurements which involve demands for professional expertise to support those procurements, those projects which are in the early stages now are being subject to the gateway review process, and as part of those gateway reviews we look to see whether departments have a clear view as to how they propose to use external advisers and whether they have the balance right between their internal resources and their proposed use of external resources so we can highlight to departments at an early stage if corrective action is needed.

  15. Can I ask a question of the Treasury before I finish and it goes back to the very first question I asked relating to the £610 million we are spending on professional services; what benefits do you think departments are deriving from this very great expenditure? Does the Treasury think all this expenditure is necessary? Are you getting the right feedback from departments? Are you satisfied that departments' own professional services are keeping a close eye on what is going on?
  (Mr Glicksman) As far as feedback from departments is concerned, we would look to the OGC who have got the procurement expertise—and the OGC is part of the Treasury—to keep their eye on that. As far as the figure is concerned, I think that we are supportive of the view that the OGC have taken. The advice from the NAO in their report that there are savings to be had here is a valued view and we will be looking to OGC to try and ensure those savings are secured.

  Chairman: I am not sure you have answered the question but no doubt others will want to come in on this. Mr Barry Gardiner?

Mr Gardiner

  16. Mr Gershon, I perfectly understand what you said about demand exceeding supply for both quantity and quality in response to the Chairman's first question of how you justify this £610 million given the number of people employed. I take it what you are saying is that if you want to get the very best professional advice in an area, it is difficult to retain that in a department of government where inevitably one is forced to be more generalist in nature rather than to specialise and therefore you need to buy in that speciality from outside. What I am keen to find out from you is when you do buy in that specialist knowledge—and here we are talking about the quality rather than the quantity side of the remarks you made—what system do you have for monitoring the quality of delivery because it seems to me that one of the great dangers we have in Government is that if we do not have the internal expertise within the department in the first place, and we have to buy it in, it is also then very difficult to be able to evaluate the quality of what we are getting?
  (Mr Gershon) The central advice that has been issued to departments encourages them, for example, to take up references from potential suppliers about other relevant work that they have done. In summary, that might mean with other government departments or it may be a piece of activity where it is more relevant to get a reference from experience that consultant may have had in the private sector. It is very clear that there should be, for example, clear milestones set at which there can be reviews with the supplier of the services as to whether he is delivering a quality output or not. There are recommendations that there should be post contract reviews so at the end of the assignment there can be an assessment made as to the level of the satisfaction overall. That is something then that can be used by other government departments in the future to take account of whether a particular supplier of professional services delivered a good job in the eyes of the customer in that particular situation. So there are both pre contract mechanisms, mechanisms that exist through the life of a contract, and post contract reviews.

  17. What evaluation have you done of the successful renegotiation of those contracts at the re-evaluation stage? Have you actually looked and seen when we are monitoring the contract and when we are reviewing the performance of the contractor and we think that things are not going well, what changes have we actually implemented at that stage? Have you done any research on that?
  (Mr Gershon) There is no central mechanism for monitoring literally the thousands of contracts that exist with a whole raft of professional services. Where there are, for example, contracts let under central frame agreements, if a government customer is experiencing poor performance or is dissatisfied with the performance of the supplier then there are clearly mechanisms where he can bring that to our attention and we would then seek to raise that with the relevant supplier. I think one of the things that the NAO Report has identified is that there is a need for more information sharing, which we want to do through the departmental heads of procurement network, which is now a well established network between the OGC and departments, to use that so we can start to develop a better picture, a shared picture across government about the performance, certainly the performance of a number of key suppliers of different types of professional services. That is very much work we plan to do. There has been little of it done centrally in the past.

  18. That is something that you are looking at prospectively rather than something which exists.
  (Mr Gershon) Yes.

  19. In that case I will back off from there. One of the targets that the Chairman mentioned from 1994 in terms of the savings targets that had been suggested there, I think it was £65 million, has not been achieved, what targets do you now have? What are the timescales for delivery of those targets of achieving those savings and what programme do you have in place to monitor your progress towards achieving it?
  (Mr Gershon) I accepted the NAO Report which identified the scope and I think that is a realistic target that we should be aiming for.

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