Examination of Witnesses (Questions 120
WEDNESDAY 16 JANUARY 2002
120. Because you are not negotiating all these
every time; I see.
(Mr Barton) That is correct, and they know, fundamentally,
the customer at that time has already had pre-qualified, if you
like, the status to supply, in their suitability to provide those
services, but it still provides scope for the specific requirement
that that customer has underneath that framework.
121. But in your memorandum, although that looks
a very plain advantage, because you get halfway there and then
you have just got the other 50 per cent to do on everything, you
say: "Currently, we are assessing the benefit, in terms of
additional business gained and reduced costs. . . against the
increased cost of administration and bidding. The current feeling
is that the return is closely balanced, though this is not substantiated
by fact." Why ever get involved in it, if that is the position?
(Mr Mitchell) We are currently reviewing what the
impact has been in our engagement in the framework contracts;
that information, that data, has not yet been clarified, if you
like, and worked through. So we are not here in a position to
say definitively whether or not it has, or has not; but the feel
of BT at this stage is that engagement in framework contracts,
on balance, is the right thing to do.
122. What I am not sure of, Mr Mitchell, is,
from what Mr Barton has just said, it is obvious there are some
benefits, because you go in for 50 per cent of the contract, you
go in and negotiate it and then you can have half a dozen contracts
on the basis of that one negotiation, rather than doing it every
time. So, plainly, there would be benefits from that. So what
are the countervailing factors that you are saying here may cancel
out the benefits?
(Mr Mitchell) I think, within the process that you
have, because it is, what is the best way to describe it, the
situation you have, because you have a defined number of people
within the various categories, so there are the frameworks but
there are people within the categories, a lot of Government business
is being channelled through that particular framework process.
Therefore, prior to that, there is a very competitive thing that
results in the price being of great consideration; so, as part
of that. It is a very competitive environment within the frameworks,
to get in the frameworks, and that means that you have to make
a decision on balance, because it is likely, not always but likely,
that the price of the service will have some impact from aggregation.
So, therefore, you are balancing the benefit of having a reduced
procurement process, 50 per cent, to use the analogy, of the contract
being set, with the need to make sure that the price is as competitive
as it can be, and that is the balance that is being made.
123. So if you come to the conclusion that the
advantage that has been outlined by Mr Barton, and the counteractions,
which I am not sure I am totally clear about, that you are outlining,
mean that there is no advantage in it, what are you going to do?
(Mr Mitchell) I think, at this stage, we will have
to reserve judgement until we have all that information in our
possession. I think it is unlikely that that will be the case.
I think the engagement with framework contracts will remain a
positive thing that BT would wish to engage in.
124. But, in the worst case, are you saying
that, if this turns out to be the case and that things are balanced,
BT will pull out from these contracts?
(Mr Mitchell) No, I am not saying that, and I would
reserve judgement until I had all the data in front of me.
125. Again, I am not quite sure why this remains
in the memorandum, if it is a non-issue?
(Mr Mitchell) I think what is made in the résumé,
it says that it is being reviewed, which is the case. I think
the actual wording says, the current feeling is that it is closely
balanced, and I think that that is a fair statement, and when
we have the data I will quite happily come back to the Committee.
Mr Beard: Thank you.
126. Is what you are saying to my colleague,
Mr Beard, the fact that if you "low-ball" a price you
cannot do it selectively, you have to do it for everyone?
(Mr Mitchell) I am sorry, can you explain all that,
please, Mr Cousins?
127. If you go in low to fix a deal, the framework
agreement means that is lodged then and it is accessible to a
whole range of other people, and the price is fixed for them as
well; that is what I meant. So if you "low-ball" a price,
and I am not suggesting there is anything improper about that,
that is your market decision, but if you "low-ball"
a price, the framework agreement means it is accessible to everyone?
(Ms Connor) Yes. Once you have put in that price,
if that price is then accepted, and dependent on what the framework
contract looks like, if I give you an example of two, to give
you some context on this, if you take what is called S.CAT, which
is for the provision of consultancy services, and then if you
take a contract which is called G.CAT, which is for the provision
of anything from a printer through to replacing a telephone system,
perhaps, or migrating over to another IT system, once you have
gone in and you have given a fixed price for those particular
things, and the OGC are very strict about you must specify how
many men, for how long, doing what job, so the prices are very,
very strict, you cannot change them. Once they are in, those prices
are open to everybody, central and local government, for services,
and you must abide by those prices.
128. How big is the management fee for the contract,
that you refer to in paragraph 10 of your memorandum?
(Ms Connor) The management fee can differ, and I am
looking into this now because I am still trying to absolutely
tie this down, and I am happy to provide that data further on;
if we take an approximate figure of around 3 per cent.
129. Three per cent; and you also mention, in
paragraph 7, you are not sure that these framework agreements
are legal, within EU rules, anyway?
(Ms Connor) Yes, we do say that; but that may well
be our lack of understanding, to be honest with you.
(Mr Barton) There is no suggestion that they are illegal.
The status of framework contracts is a continuous dialogue, which
I believe is the responsibility of the OGC.
130. We are having a lot of backtracking from
you this afternoon; and let us just be clear about this. In paragraph
7, you say: "we are not sure what the formal legal status
of framework contracts is. . ."; is that still the case,
are you still not sure what the formal legal status of framework
(Mr Barton) I think it is true to say that there is
a lack of clarity about the continuing and evolving status of
framework agreements, that there is, as we understand it, continued
discussion about the status of framework contracts and about their
evolution, and it is never entirely clear, because some of those
may be a matter of interpretation.
131. For how long have they been going, these
(Mr Barton) For some years.
132. Has it not been found out in some years
then, if they are illegal?
(Mr Barton) I am sorry?
133. Why has it not been found out during the
period they have been on the table?
(Mr Barton) It is quite clear that the framework contracts
that we have engaged in, the status of the validity of those,
endorsed by the Office of Government Commerce, in this particular
case, are clearly legitimate, and we contract on that basis, that
the issue of the standing of framework contracts, as I understand
it, is a continued discussion about the evolution and interpretation,
and the operation of framework contracts is itself perhaps, over
a period of time, a moving target.
134. Can I ask just one, quick supplementary.
You do have an internal, in-house legal department?
(Mr Barton) We do, yes.
135. And, presumably, when you are signing these
agreements, they bless them, they are cleared by your in-house
(Mr Barton) Correct; so, clearly, for any framework
contracts that we have engaged in, in those processes, it would
have been carried out within BT and they would have been perfectly
happy with those arrangements and would have accepted that.
136. So there is not a problem about the legality
(Mr Barton) No. I think the comments actually refer
to the ongoing status of framework agreements.
Chairman: Perhaps you could clarify that
for us, if you are replying to us?
Mr Ruffley: Can I just say, the paragraph
from which Mr Cousins has read does not talk about "ongoing".
it talks about the legal status of framework contracts, you were
talking about ongoing. I just think we need to be absolutely clear
about whether or not these are legal or not, and it seems to me
that it is a critical point, your corporate organisation?
137. Can we ask you to respond to that specific
point for us?
(Mr Mitchell) We will come back to the Committee on
Chairman: Thank you.
138. You refer, in the context of the GTM framework
contract, to the dangers over time of creating a single dominant
supplier and being in an inflexible position that is difficult
to reverse. I think, perhaps, that in the contracts of BT we are
familiar with the problems of major suppliers. Does the Government
really have the spending power to make this a real risk, especially
in the IT and telecommunications field?
(Mr Mitchell) I think it is a considering factor,
and in certain instances the buying position of Government is
significant enough to effect the market position. The point that
was getting over in the statement, I think, was the need to constantly
consider balance between the benefits of engaging with a single
supplier and the benefits that that brings, coupled with, potentially,
considerations regarding the benefits that are given from innovation,
creativity, when you have a competitive environment in play. So
I think the statement in there is about being aware of the considerations
that are needed in that context.
139. Yes; from this and earlier answers, I am
getting the impression, which may not be correct, that, on the
whole, all things taken into consideration, you would prefer an
open playing-field without framework agreements, but, of course,
if there are framework agreements, you will work in that context,
if you can. Would that be a fair statement?
(Mr Mitchell) I do not think that is a fair statement.
I think the market will determine the place for framework contracts
and will determine the place for open negotiation.
Dr Palmer: Thank you.
140. Mr Mitchell, thank you very much indeed.
There are a few points there we would like to hear from you again
(Mr Mitchell) And we will reply, accordingly.
Chairman: Thank you very much, and thank
you to your colleagues.
2 Note by Witness: "We have concluded
our investigation into the legal position regarding European procurement
law and are satisfied that there are no areas of concern. We will
continue to monitor development in the use of framework contracts,
ensuring their adherence to European procurement laws. If we have
any concerns we will take them up directly with the Office of
Government Commerce." Back