Select Committee on Public Accounts Twenty-First Report

Examination of Witnesses (Questions 40-59)



  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?


  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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