Examination of Witnesses (Questions 20-39)
MR PETER
GERSHON CBE AND
MR HUGH
BARRETT
WEDNESDAY 24 OCTOBER 2001
20. You said "that we should be aiming
for".
(Mr Gershon) Yes.
21. You mean it is a target that we have?
(Mr Gershon) It is a target.
22. Yes.
(Mr Gershon) By our acceptance of the report we have
accepted that the target is a realistic target that we should
all aspire to achieve. The way in which it will be monitored is
within the overall OGC top level value for money improvement target,
which it has to achieve in the first three years of its existence.
During the course of the last fiscal year we agreed with departments
and the NAO a methodology which departments would use to report
to us the savings that were achieved under the various initiatives
that the OGC is sponsoring. So we will use this methodology as
the way of capturing overall value for money improvement which
includes the contribution that will come from better procurement
of professional services.
23. If I can move on to another area the Chairman
touched on and that is when he referred to the 32 per cent of
contracts for which there was a single tender. Have you now got
in place new instructions on tendering for low value contracts?
(Mr Gershon) No. We are in discussion with the departments
at the moment about what proposed new controls ought to be within
departments. What we have done is build up a picture of existing
controls and we have now come back with some proposals in this
area. There is general acceptance amongst my Supervisory Board
colleagues that we need to make it harder within departments to
go to single tender and easier for departments to go competitive.
So we are closing off the gate on the one hand about single tender
action, which will look to better control endorsed by the Permanent
Secretaries, and then putting in place a broader range of frameworks
as an example to make it easier to run competitions.
24. Can you give the Committee a timetable by
which you hope that improved process will be delivered?
(Mr Gershon) The new controls, I hope we will have
agreed with departments by the end of this calendar year. The
timetable for the range of frameworks, we are looking to refresh
the existing management consultancy framework arrangements by
next March and I would expect to see the framework agreements
in areas such as legal services, human resources and accountancy
then being put in place during the first half of the 2002-03 fiscal
year. Shall I say by next September.
25. Looking at the question of the lack of information
that departments have held about the contracts which they have,
is there now someone responsible within each department for the
gathering of that information so we do not have this situation
where in 43 per cent of the contracts, or of the value of the
contracts we just do not know where the money has gone?
(Mr Gershon) On the exercise I referred to, that data
was provided to us through the principal finance officer network
because their departmental finance directors own the accounts
payable files.
26. Yes.
(Mr Gershon) As departments come up to replace their
existing financial and management information systems then the
departmental heads of procurement are one of the key stakeholders
in those projects and we look to them to ensure the replacement
systems will be providing the relevant information. Most of the
replacement systems are using industry standard packages which
will tend to provide this information anyway as a by-product if
the systems are set up correctly in the first place.
27. So are you saying that the reason why that
information has not been—
(Mr Gershon) Many of the current systems were simply
not written in such a way and designed to provide this sort of
management information, and that is part of how we are trying
to do the best we can with the data that we can get as by-products
from today's systems.
28. Can I just bring you to the focus of the
question, though, and that is is there a specific person within
each department who you would be able to hold accountable if there
was a failure of that information?
(Mr Gershon) I do not think technically I can hold
anyone in departments accountable in the sense it would be recognised
by the House. We would look primarily to working with heads of
procurement and principal finance officers to ensure that replacement
systems would provide this sort of information.
29. And if there were a failure of that system
to provide the information in some way, you are saying that it
is those two positions, those two post-holders who would be responsible?
(Mr Gershon) Yes I would expect to have access to
why they had not addressed this issue.
Mr Gardiner: Thank you very much.
Chairman: Thank you, Mr Gardiner. Mr John Trickett?
Mr Trickett
30. I want to ask you to return to some points
that have already been raised and perhaps ask some cultural questions
at the end if there is time. According to the sample of contracts
which was looked at in 1999-2000 50 per cent of the contracts
had not been tendered in terms of multiple tenders. So it was
not 32 per cent, it was 50 per cent. I am wondering how you satisfy
yourself, first in terms of probity, in relation to those contracts
because it seems to me that it has raised all kinds of questions,
one of which is probity. What is to stop collusion between the
civil servant doing the purchasing and the supplier if there is
only a single tender or not even a tendering process?
(Mr Gershon) As I have already said, our focus has
been on trying to address how we reduce the incidence of single
tender in the future, and that arises, as I said, through better
control. We need to ensure that departments do take seriously
the involvement of professional procurement in the sense that
the user of the service has someone during the procurement who
is professionally qualified to help make sure that an objective
decision is made based on clear evaluation criteria to select
the offering that provides the best value for money for the taxpayer.
31. I am asking you about probity. If I can
try to use different language—what is to stop a corrupt
relationship? Is that not something which enters your minds in
your particular function, the possibility that there is collusion
between the person who holds the budget in the Civil Service who
is purchasing the services and the supplier of services? It strikes
me that if there are multiple tenderers and one has objective
criteria to choose between the tenderers, such as price for example,
the possibility of collusion is substantially reduced. Some of
these appear to be by simple telephone calls—that is how
one reads the paragraph here—to the supplier "please
will you supply the following services". That raises issues
of probity in my mind immediately and it is 50 per cent, which
is £300 million worth of contracts which are going out without
multiple tenders. Does not the issue of probity raise itself in
your mind and what thoughts have you had on that?
(Mr Gershon) I am clear that the public procurement
process operated by government has the highest possible level
of probity. The way we check is to ensure in future as much as
possible is done through competitive procurement using clearly
defined, publicised, objective evaluation criteria and the involvement
not only of the user in that procurement process but professional,
qualified procurement staff as well so that the users' interests
and the interests of the procurement community are brought together,
and there is not just one person involved in the process. I think
that helps create an environment in which there is more likely
to be a very high level of probity than where you get informal
single tender action.
32. That is a prescription of where we ought
to be and perhaps where we are rapidly getting to, but I am interested
in the question of what guarantees so far have we had in relation
to the probity of this £300 million worth of work.
(Mr Gershon) I cannot give you any guarantees about
what has happened in the number of single tender actions that
were identified in the Report in respect of the past.
33. There will be a theme of probity running
through some of the other questions I want to put to you. I want
to refer now to the table which has been provided to us of suppliers
where we find that 25 suppliers provide 37 per cent of all these
external services. In fact, if you take the top four, remarkably,
it is almost 25 per cent of the total purchases. £132 million
was provided by four suppliers, each of which are overlapping
in the kind of business which they do, frankly. I want to ask
you about oligopoly and the power of suppliers to determine prices
and I will come to that in a second or two. Before I do that,
am I right in assuming that maybe 50 per cent of the contracts
that have gone to this top four were done on single tender procedures
or not even single tender procedures? Would you imagine that the
same types of proportion will apply approximately to those tenders?
(Mr Gershon) Mr Barrett and I have had discussions
with two of the top four.
(Mr Barrett) The top three.
(Mr Gershon) And they have told us that the bulk of
the business they have done was through competitive tendering
actions, it was not done through single tenders.
34. None of it?
(Mr Gershon) I did not say none of it; the great majority
of this was done through competitive procurement.
35. That is what they have told you rather than
you being able to determine it. That is a question of the suppliers
rather than the purchasers, presumably?
(Mr Gershon) Yes, it covers a large number of contracts.
But those are reputable companies and they would not have deliberately
misled me because if it subsequently transpires that we were misled
clearly the consequences for them are quite serious.
36. But it does tell us something about the
management information systems.
(Mr Gershon) Yes.
37. I was not suggesting for a moment that they
were trying to mislead you. I was wondering how you obtain that
knowledge. Nevertheless, some of the contracts, some of the £132
million going to those four companies may well not have been done
through the process of competitive tendering. Do you feel, in
your experience, that a group of suppliers, however reputable,
when they discovered they are providing a quarter of all services
purchased by the Government, would think that this was quite a
small market-place, and do you think at all that the Government
is in the position of a purchaser of services which is, to some
extent, at the mercy of a handful of companies and should anything
be done to address that? Do you feel it is something we should
be thinking about?
(Mr Gershon) Firstly, I would say that I am not surprised
that we see this sort of pattern amongst the top companies because
if you look at external surveys that have been done, there has
been one published in Accountancy Age and there are surveys
done by one of the management consultancy associations, then you
would see that their overall position in the UK market-place in
terms of the revenues and the number of professionals they have
on the ground is not dissimilar to this pattern. It slightly depends
on the extent to which some are focusing more effort on the public
sector than others but this is not a surprise to me. I think this
covers a range of different professional services ranging from
management consultancy, for example, accountancy type services.
To some extent those are different markets which makes it harder,
I think, if there is to be scope for the sort of behaviour that
you are suggesting. Secondly, on the big assignments, some of
the high profile assignments, I am satisfied that of those that
fall above the EU threshold there is pretty well 100 per cent
compliance with going out to competitive tender.
38. We are now complying or we ought to be complying?
(Mr Gershon) No, I am satisfied that there is a high
level of compliance with where the EU thresholds require that
there is competition.
39. Nonetheless, there are three companies—I
am not including WS Atkins, they are consulting engineers, the
others are accountancy, personnel management, consultant type—it
does not take a genius to discover that a quarter of all contracts
go to four companies, all swimming in the same pond, they see
the advertisements in the European journals and come to agreed
prices. I am not suggesting that is happening but I put to you
I wonder whether you think we are vulnerable as a government,
if you like, to the possibility that there might be some conversations
on the golf course?
(Mr Gershon) Conversations on the golf course? The
industry produces surveys on things like rates.
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