Examination of Witnesses (Questions 1
MONDAY 22 APRIL 2002
1. Good afternoon and welcome to the Committee
of Public Accounts. This afternoon we are looking at the PFI deal
to provide a new radio communications system for the police. We
are very happy to welcome Mr John Gieve, Permanent Secretary of
the Home Office. Welcome. Would you like to introduce the top
table for the members of the Committee?
(Mr Gieve) Phillip Webb is Chief Executive
and Accounting Officer for PITO. Jeff Parris is Vice President
of Airwave mmO2 Ltd. Vaughan Asque is a member of the Science
and Technology Unit in the Home Office.
2. Why do you consider the Airwave deal a better
outcome than a series of local procurements?
(Mr Gieve) For a number of reasons. Firstly, it allows
better co-ordination between police forces and that is a key gain
from having a single system which straddles the whole country.
Secondly, it allows what is called roaming, that is to say police
from one area to come to the help of another and then use their
own equipment. Thirdly, it enables us to concentrate our expertise,
especially in new technology as complicated as Airwave's, also
it allows some economies of scale in the resource put into managing
the system and there may be economies of scale in the procurement.
3. Do you want to comment on the disappointing
outcome of this? We only have the police on board, not the Ambulance
or Fire Services. How would you reply to somebody who said to
you that you locked yourself into this contract early on, you
were determined to press ahead with it with only the police, you
only had a single supply, in fact you did not get as good a deal
as you might have done? If you had looked at a series of local
deals, you could still have ensured interoperability between the
various police forces which I am sure you would agree is the important
aspect. You have actually got quite a bad deal at the end of this
with a lot of public money thrown at it. I just throw that general
question in as a starter.
(Mr Gieve) There were two questions really. One was:
why did we not keep the Fire Service and Ambulance Service on
board and have an even bigger national procurement? The other
was: why did we not go for a series of local procurements? On
the first, we did intend originally for this to be a fire and
police system. The Ambulance Service was not engaged and in 1996
the Fire Service decided that the requirements of the police for
their system were more complex than the requirements of the Fire
Service, so they disengaged from the procurement, although they
have stayed on the potential sharers' register. That was what
happened with the Fire Service.
4. Why was the Ambulance Service not included
in the scope of the project?
(Mr Gieve) We talked to the Ambulance Service at the
time, in the early 1990s, but at that stage they had no requirement
for a new radio system. There is now, as you know, and they are
now planning to have a national procurement which will have interoperability
requirements in it.
5. So they might come in on this system.
(Mr Gieve) They might.
6. That will increase the already substantial
profits for the company once they do.
(Mr Gieve) Not necessarily. They have not negotiated
a price. The Fire Service, or a substantial part of it, may also
join the system, if it works. If you look back to the early or
mid 1990s, there was no proof that it would work and the Fire
Service, quite properly, took a view at that stage, that they
were not looking for quite the functionality that the police were
and they disengaged. From a government point of view, the fact
that you have three or four people taking an independent view
is not necessarily a bad thing. Yes, in principle, after the event,
if it all works very, very well, you could say we should all have
gone in at the beginning and we would have gained even better
economies of scale. However, coming to your second question, there
is a risk in putting all your eggs into one basket well in advance.
Coming on to that: why did we not let the police pursue over 50including
Scotlandseparate procurements? Because the police agreed
with us that there were great advantages from having a single
comparable system across the country. You say we have thrown a
lot of money at it. Yes, it is a very expensive project but we
think it is still a project which is going to produce and is beginning
to produce great benefits for the Police Service.
7. May I ask Mr Webb about this 17% return which
was calculated as being what would be the right sort of return?
How was this figure arrived at? Why was it deemed to be reasonable?
(Mr Webb) It was arrived at by O2. We took advice
from both our technical and our financial advisers in reviewing
that. Considering the level of risk we were transferring to O2
and the fact that there was no precedent for such a large system
in previous procurements, it was new technology, there were several
stakeholders and in fact there were issues relating to site acquisition,
we considered the 17% return was fair. This was endorsed at the
time by both ourselves and the Home Office. We felt we had actually
taken independent advice and the return was fair.
8. What worries me is that a reliable model
could not be constructed without O2 providing detailed information
about the quantities of components and labour and the timing of
when they would be required. So you arrive at this figure, but
you only have one company now bidding for this because you are
locked into this project. You arrive at this figure of 17%, though
it is not entirely clear how you achieve it, but you only achieve
it with the help of the only company bidding for the contract.
That seems a strange way of going about things to me.
(Mr Webb) Before that, through the two models we applied
to look at value for money, we examined very carefully exactly
how much the cost would be and in fact as a result of that exercise
we have reduced their costs so the return was on the final cost
9. May I ask you about this public sector comparator?
Firstly you decide not to use a comparator, then very late in
the day you decide to use a comparator. There is absolutely no
question of a public sector body being able to bid for this. Why
did you use a comparator? Was it just to please this Committee?
(Mr Webb) We actually chose initially to use the `should-cost'
model. We felt that the `should-cost' model was far more robust.
In the report we received support for that from the NAO in the
sense they felt that was a right approach. The fact we actually
used the public sector comparator towards the end of the project
was because we felt it did meet the public sector comparator and
so we undertook that at the end.
10. How did that help your value for money assessment?
(Mr Webb) Let us be perfectly honest. If it had come
out significantly less, we would have been very concerned about
the figures we had come up with. In fact, having gone through
that and having had it rigorously reviewed by our financial advisers
and our technical advisers, it came out considerably more expensive.
11. It seems that existing police radios are
not up to the job. Why?
(Mr Gieve) In what respect or why not?
12. In reading the report, it does seem that
you have been responsible for this for 50 yearsadmittedly
not the same radios, although sometimes the police may be forgiven
for thinking so.
(Mr Gieve) And not the same Permanent Secretary either.
13. Certainly not you personally. You think
that the existing police radios were perfectly good for the job,
(Mr Gieve) No, we do not, which is why we are helping
to procure a better one. What is wrong with the existing police
radios varies across the country. Some have more modern ones than
others but quite a lot of forces have very old systems which are
subject to interference, which are running down, which are difficult
to maintain, which can be listened to by hackers and so on. That
is the fundamental reason why we have been supporting this project.
14. You took a long time to get something moving
though, did you not?
(Mr Gieve) Yes. The context of this is that the police
are not a state run service. This is not like buying radios for
the Prison Service. There are independent police authorities and
chief constables and after the decision was taken in 1993, after
the review which said that we should go for national procurement,
we had to spend some time in getting our constituency together
on a co-operative basis. Indeed we still have to. In terms of
timing, this is still cutting edge technology. It is not that
we are buying yesterday's technology five years on. Airwave is
still at the cutting edge.
15. That leads me straight into the next question
to Mr Parris. With problems being encountered during the pilot,
how confident are you that Airwave will work?
(Mr Parris) Airwave does work. Airwave is operating
excellently in five of the police forces where it is currently
rolled out. I am absolutely confident that Airwave will and is
working. There are some issues for the Greater Manchester police,
which we may come onto later, which we are resolving with GMP
and the other parties operating there. Unequivocally I can say
that Airwave is working.
16. You say that, but the pilot of Airwave in
Lancashire has encountered a number of problems that have not
yet been fully resolved. That is mentioned in paragraphs 3.8 to
3.14. These problems include lower than contracted levels of coverage
and a dropping of calls off the network. I understand that dropping
of calls means if you are a police officer in a serious situation
that suddenly your set can go dead, which might be rather alarming.
(Mr Parris) The whole purpose of the pilot was to
examine in great detail and very publicly all the issues associated
with implementing Airwave so those lessons could be learned from
as we went forward with the rest of the police forces. The issues
you list were encountered and I think have all now been resolved.
I have no embarrassment about the pilot throwing out lessons to
be learned and opportunities; it was designed by the procuring
parties to do just that.
17. You are working on how to identify benefits
from Airwave. How will you isolate the benefits of Airwave from
other improvements in police IT systems?
(Mr Webb) It is a very difficult task. The first thing
we are endeavouring to do is to establish a rational benchmark
in terms of each of the forces where we are putting them in. From
that we are putting in place measures to determine exactly what
benefits are being achieved. By virtue of the fact that we are
putting in infrastructure here, it will have an impact on the
processes and procedures the police use, in the sense that it
will open up new opportunities. We are monitoring very carefully
to determine what could and could not have been done prior to
Airwave being introduced.
18. May I return to the cost of the Airwave
project? It says in this report that local solutions would have
been cheaper, although you would argue not as good. Do you have
any idea what the extra cost was of the Airwave project versus
a local procurement?
(Mr Gieve) The figure quoted in the report is £300
million, which was a comparison with a review conducted for ACPO.
As you say, that would not have been a comparable system in terms
19. Do you accept the £300 million figure?
(Mr Gieve) Yes.
1 Note by witness: The 17% return was arrived
at by the project's financial advisers. It was endorsed by PITO. Back
Note by witness: In addition we used the public sector
comparator because of the Treasury guidelines and to give an extra
confidence check. Back