Examination of Witnesses (Questions 40-59)
MR PETER
GERSHON CBE AND
MR HUGH
BARRETT
WEDNESDAY 24 OCTOBER 2001
40. Exactly.
(Mr Gershon) It is not a secret.
41. So how would we use our purchasing power
then because you seem to be agreeing with the general thrust of
what I am saying without accepting precisely the point I mentioned.
How would we use our purchasing power then to ensure we drive
down prices in the kind of oligopolistic position which we have
in the market place here?
(Mr Gershon) For example, if you look at the actual
catalogue which supports the SCAT framework agreement, you can
see it there, each of the suppliers who participates within SCAT
publishes their rates, what the discount arrangements are for
volume, what the arrangements are, for example, like travel and
subsistence expenses, and you can see that those rates vary. Then
if departments run mini competitions between a number of suppliers
to get a particular rate for a particular specified job they are
not only looking at price, they clearly have to look at the relevant
expertise that the suppliers are providing. This is not just about
a price. Certainly in some of the things we are dealing with,
if we are going to procure experts we need to make sure that there
is a value issue here as well as a straight pricing issue.
42. I think my time is probably going to expire
fairly soon. I just want to ask you about cultural differences
between the private and public sector. I can see what the public
sector can learn from the private sector and you have had a lot
of experience in the private sector, no doubt bringing in a very
fresh eye to the work of procurement. Do you think there are aspects
of the public sector which are different in terms of procurement,
there are different responsibilities upon the public sector which
are not in the private sector?
(Mr Gershon) I think in the private sector it is clearly
easier sometimes to attract and retain experts in particular areas
because clearly there is more freedom in terms of pay and benefits
and, in some areas using Civil Service rates and terms and conditions
of employment and pay, it would be very difficult to attract sufficient
people with the relevant high levels of expertise to work within
the Civil Service in particular areas. That is one clear difference.
The second difference is in the private sector, in my experience,
there tend to be two different approaches to how you control expenditure
on consultancy. One is in companies where there is a general perception
which is they should be used as little as possible and to get
approval to do it you have to go to a very, very high level.
43. Exactly.
(Mr Gershon) There are others where the fact that
local business subsidiaries have tight budgets means you let the
local guy running the business decide whether he wants to spend
some of his tight budget on external professional advice. Clearly
you still have some say, particularly in these days of corporate
governance where every PLC I am aware of will be sensitive as
to, for example, how much non audit business the company's external
auditors will be receiving to ensure they are not using their
privileged position as auditors to get additional consultancy
work because of that relationship.
Mr Rendel
44. I want to start, if I may, by pointing you
to page 27 of the report, paragraph 2.10 and figure 14 which appears
on the next page. I am interested before I start on more general
questions about some detailed questions about this, particularly
the 18 per cent of the contracts—mentioned in the last six
lines or so—which ". . . were either not tendered because
the work was carried out . . ." internally or by a member
of a term consultancy panel or the procurement method was unknown.
Firstly, I am not quite clear why contracts which were in the
end done internally come into this at all. They are not purchased
at all if they are done internally. Is that a fair point? I do
not understand why they are included as contracts.
(Mr Gershon) If you have an internal management consultancy
unit you may still place some form of internal contract with it
to do the work so there is a clear specification. Some of the
disciplines that allow the departments to use external providers
should also apply to internal providers, like having a clear specification
of what is required and a measure of how value is going to be
delivered.
45. When you are tendering you always, if possible,
ask for an internal supplier to tender as well?
(Mr Gershon) I cannot comment on that.
Mr Rendel: Why not?
Chairman
46. Why can you not comment?
(Mr Barrett) I do not think we know the answer to
that question.
Mr Rendel
47. Why not?
(Mr Barrett) Because there are thousands of contract
awards going on and we do not monitor centrally who is invited
to tender for professional services.
48. Is there a policy that where there is a
need for certain services and there is an in-house body which
is capable of doing it that that in-house body would always be
asked to tender? Is that a policy which the Government works on
in general?
(Mr Gershon) Do you mean in-house within a department
or in-house within government?
49. Either. If there are in-house specialists
who could do it, I would assume, I have to say, that there is
a normal policy that that in-house body in any department or in
government in general would always be asked to tender.
(Mr Gershon) Yes, but it should only be selected if
it gives best value for money.
50. I am talking about whether they are always
asked to tender. You seem not to know—
(Mr Gershon) Are they always asked to tender—
51. —whether they would always be asked
to tender.
(Mr Gershon) I cannot say with any certainty that
they are invariably asked to tender.
52. It is not a definite policy or are you saying
it is a definite policy but you do not know—
(Mr Gershon) I am not personally aware of the existence
of such a policy.
53. Okay. Interesting. Surprising but interesting.
The other parts of this 18 per cent are where it has gone to a
member of a term consultancy panel. Can you just explain that
a little bit more?
(Mr Gershon) I would categorise it as it being in
the same sort of area as a framework agreement. It is a pre-selected
set of companies or people which enables then rapid procurement
in individual situations to be conducted.
54. And the third item was where the method
of procurement was unknown due to organisational change. The first
question is do you know of the 84 contracts how many fell into
each of these three categories?
(Mr Gershon) No, I do not.
55. You do not know the procurement method because
of all the organisational change?
(Mr Gershon) No.
56. Can you explain to us why an organisational
change where a department has taken on a contract previously let
by another department should mean that the knowledge of how that
procurement was made disappears?
(Mr Gershon) As has already been indicated, in some
areas the management information systems are not particularly
good and need to be strengthened. As organisational change happens,
and people leave or move on elsewhere, that knowledge of how a
particular procurement was conducted could well get lost.
57. That presumably could happen in large organisations
anywhere, people move on. One would expect there would be some
written record of how the procurement is made. Is that not true?
Were not written records kept of how those procurements were made?
(Mr Gershon) Clearly not because that has been identified
within the Report.
58. Are you saying there are never written records
kept?
(Mr Gershon) The Report says that in some instances
it was not possible for the departments to provide the information
that the NAO requested for the sorts of reasons that are listed
here.
59. A reason listed here is that there has been
an organisational change and the department has taken on a contract
previously let by another department. If there were always written
records available I would not expect that sort of organisational
change to be a reason for failing to know how the contract was
originally let. If there are written records it does not matter
if there has been an organisational change or not, the written
record should still exist.
(Mr Gershon) There would clearly be a purchase order
that enabled the supplier to undertake the work but the purchase
order would not necessarily record the basis on which that supplier
had been selected. That is not the normal sort of information
you would keep on a purchase record.
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