Examination of Witnesses (Questions 80-99)
MR PETER
GERSHON CBE AND
MR HUGH
BARRETT
WEDNESDAY 24 OCTOBER 2001
80. The National Audit Office clearly say that.
They are saying there is scope for £60 million worth of savings,
so somebody has been getting more than they should have been.
(Mr Gershon) Let me answer the original question that
you posed.
Chairman
81. If you could just try and attempt to answer
all the questions.
(Mr Gershon) Yes, but can I go back to the first question?
82. Yes, you can.
(Mr Gershon) Firstly, we have put in place, as I said,
an agreed methodology with departments and the NAO now that on
an annual basis we are measuring value for money improvements
out of government procurement expenditure. Secondly, we are putting
in place a broader range of framework agreements. The update to
the existing SCAT catalogue, which includes both IT based professional
services and broader management consultancy, will be put in place
by the end of March. We have said we will put in place a broader
range of framework agreements covering legal services, human resources
and accountancy services by September of next year. We have also,
in conjunction with the NAO, co-sponsored a booklet for auditors
to help them understand the role that they can play in getting
greater focus within departments about getting better value for
money for procurement expenditure, including professional services.
I said that we are starting to put in place a broader range of
controls within departments to make it harder to take single tender
action, supported by more framework agreements to make it easier
to undertake competitive procurements, particularly where demand
for professional services can arise at very short notice. Those
are some very specific measures that are being taken now.
Mr Steinberg
83. You must be aware, presumably you did a
little research before you came here and found out the attitude
of this Committee towards consultancy fees and what has been said
in the past?
(Mr Gershon) Yes.
84. I asked the National Audit Office, because
they have much more research facilities than I have because there
are so many more of them, to look me up a couple of examples over
the last 18 months regarding consultancy fees that we could look
at. They came up with two out of possibly dozens they could have
done. This was the Committee of Public Accounts 19th report, the
Contributions Agency, Newcastle Estate Development Project. The
National Audit Office report found that the cost of advisors had
increased during the project from an estimated £250,000 in
the budget to an outturn cost of nearly £3 million. At that
particular hearing I highlighted this and asked the reasons for
the increase, why Masons had received such a huge increase in
fees, fees which represented something like 93 per cent of the
total cost of the external advisers and really we did not get
a satisfactory response. Another example is when we look at the
15th report, the Office of Passenger Rail Franchising, the award
of the first three passenger rail franchises. The consultancy
fees were £19 million for legal and financial advice and
we expressed our deep concern at that time that no budget had
been set for external advisors. Surely that cannot be right. What
are you going to do to put it right? What are you going to do
to stop this happening again?
(Mr Gershon) I am aware of the Newcastle report because
clearly there was a Treasury minute response to that which placed
a number of actions on the OGC to follow up and that has been
done.
85. Will you guarantee it will not happen again?
(Mr Gershon) Let me try to explain some of the mechanisms
that we have put in place. I cannot guarantee it, no, but I can
tell you that there are mechanisms today that were not in place
when the Newcastle project was in its pre-contract phase. Firstly,
there is much clearer advice and guidance to departments about
the selection and use of professional advisors, both in PFI, because
Newcastle was a PFI project, and in other areas. Secondly, on
major projects now, we have in place the gateway review process
which provides independent reviews of projects at different points
in their life cycle, particularly looking at what is going on
in the pre-procurement phase. One of the things that those reviews
look at is the extent to which departments are properly planning
the use of external resources in the early, i.e. the pre-contract,
stages of the projects. What I can say to you is if the Newcastle
project was starting today it would definitely be subject to the
gateway review process. I believe the review process would have
flushed out some of the weaknesses that were identified in that
particular project, as to whether guidance was being followed,
whether there were budgets set and the sorts of controls that
were in place. Those are some of the things that we look at now
in gateway reviews.
86. I could go on but there are a number of
other issues that I wanted to discuss and perhaps we will leave
that for the moment. Just as a little anecdote, I can remember
being in a meeting with some civil servants not so long ago. I
will not say which department it was or who it was because that
would be unfair—in fact it would not be unfair, but never
mind—and I said that Deloitte and Touche had recommended
a course of action. He said to me, "They would, wouldn't
they, because that is what the department wanted to hear".
Do you think that is a normal sort of attitude, that when you
employ consultants basically they are giving the advice they know
the departments want to hear?
(Mr Gershon) Do I think that is a normal attitude
based on the discussions I have had with civil servants involved
in this area? No, I do not think that is a normal attitude.
87. You do not. I will tell you why I say that—because
I find it very difficult to accept that we need Deloitte and Touche
and PriceWaterhouse and all these people. In the report it says
we hire 3,000 experts and specialists, all on presumably very
high wages and yet we still spend £610 million on professional
advice. What the hell are they being paid for in the first place?
What do they do?
(Mr Gershon) Are you talking about the external advisers?
88. I am talking about the internal advisers.
We employ 3,000 internal advisers, presumably all specialists
all on very high wages but we cannot go to them; we go out to
Deloitte and Touche and PriceWaterhouse. Why do we employ 3,000
specialists in the first place? What is the total salary of 3,000
experts for the year?
(Mr Gershon) Because there is internal demand for
those experts.
89. We employ experts so why are they not used?
(Mr Gershon) Because in a number of areas they do
not necessarily have the relevant expertise or they are not necessarily
available to meet the demands of departments.
90. I would ask the question, if that is the
case, why not? Presumably when you employ specialists and advisers
you employ them to give advice on specific issues you know are
going to crop up, so why do you need so much external advice?
(Mr Gershon) The NAO Report identifies a number of
reasons as to why organisations look for external advice. Some
of it is because the expertise is not in-house. As we move more
and more into areas like e-government, where, in some sense, government
is looking to do some of the things that have already been done
in a number of private sector organisations, the internal experts
do not have the relevant expertise, they have not worked on that
type of project, they can bring no practical experience to bear
based on having done comparable projects in the private sector.
Should we use a so-called internal expert who does not have the
relevant practical expertise or should we use somebody who has
got that expertise? In some areas departments need to avail themselves
of people who may have relevant, practical expertise that is not
available in-house.
91. I wanted to cover what Mr Trickett was raising
because I was also very worried about what I thought was the chummy
relationship that civil servants seem to have and the power of
patronage they have, but he covered that so I will move on. One
of the things that did annoy me most intensely about this report
was what appeared to be the lack of co-operation between departments
and the National Audit Office, page 31, paragraph 2.17, figure
17. When departments were asked by the National Audit Office for
information regarding the departments' expenditure on professional
services, 50 per cent failed to give the information requested.
And the 50 per cent who failed to give the information were the
ones who spent the most money in the first place. Why was that?
It seems to me click, click, click "We are not saying, guv.'"
(Mr Gershon) I am trying to work out how you calculated
that.
92. I hoped my sums were correct when I did
my little notes.
(Mr Gershon) There was no response—
93. And incomplete, so they did not give the
information that was requested.
(Mr Gershon) Sorry, it is for the reasons we have
discussed already, that management information systems available
in the departments did not enable them to answer the questions
that the NAO had asked.
94. Is that not handy? It is very handy, is
it not? I just find it incredible.
(Mr Gershon) I think the NAO, as the auditor of many
of these departments, would have a view as to whether they were
just using a handy excuse or whether their departmental systems
inhibited them from providing the information.
95. You have got a lot of work on your hands
in the next year, have you not Mr Gershon?
(Mr Gershon) Don't I know it!
Chairman: Mr Alan Williams?
Mr Williams
96. May I ask NAO whether they billed Mr Steinberg
for all this consultancy work they have been doing on his behalf!
It was money well spent anyway. We can understand that there are
circumstances where it does not make sense to have skills in-house.
There are ad hoc skills which you only need occasionally
and therefore it is more cost-effective to buy outside as and
when required. The Committee well understands that but there is
a sneaking suspicion that has emerged at one hearing after another
that, in a way, consultants are a sort of body armour for the
civil servant. They may know what they want to do but in case
it goes wrong they want to have cover to say "we went out
and got consultants", even, as Mr Steinberg suggested, if
they find "friendly" consultants. Is that a possibility
do you think or is it purely political suspicion?
(Mr Gershon) I would have to acknowledge that it is
at least a theoretical possibility, Mr Williams.
97. This Committee has been blamed for much
of this risk aversion amongst civil servants and this is a way
in which a civil servant can, as I say, secure protection. Let
us go back to this 1994 Cabinet Office scrutiny. What was the
level—does NAO know this—of consultancy expenditure
at that time? They must have had a level in order to be able to
recommend that £65 million could have been saved.
(Mr Burr) My recollection was that it was £500
million at that time.
98. Do you confirm that figure, Mr Gershon?
(Mr Gershon) Yes, just over £500 million is the
number referred to in the Report. They looked at the whole span
of external support and they identified a number of categories,
one of which was consultancy, others included things like staff
substitution and research. They identified a total and then they
focused in on this just over £500 million of consultancy
spend.
99. Then you told us that in between times there
are no annual figures. That leaves us with a suspicion that the
efficiency scrutiny was treated as a matter of symbolism by the
Civil Service who paid lip service to it and carried on in their
own old merry way, and took no notice of it at all.
(Mr Gershon) I think what you can see, and there are
a number of examples highlighted in the Report, is that a number
of departments have taken quite comprehensive action to get a
good handle on their expenditure in this area. The Report talks
about, for example, the Department of Social Security, the DWP
that now is. The Report also argues why the results were only
partially implemented. There clearly are certain things that have
happened. There was a control that was put in place after the
review and, certainly in my experience, controls need to be refreshed
and reinvigorated, which was the so-called £50,000 limit
which I think was introduced by one Cabinet Minister in 1995 or
1996 and was then picked up by a number of his colleagues. That
only addressed, however, management consultancy. It did not apply
to other forms of professional services such as legal accountancy
and expenditure on external human resources and so on and so forth.
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