Examination of Witnesses (Questions 80-99)
Monday 15 March 2004
Mr Leigh Lewis CB, Mr Vince Gaskell, Mr Bernard Herdan,
and Mr Paul Pindar
Q80 Mr Jenkins: Why did you not go back
to the second or third bidder and say if, "If I reset the
criteria based on this assumption what price would you come in
at?" It is now deemed to be a non-goer as far as you are
concerned.
Mr Lewis: For two reasons, firstly
the bid from Capita was what is known as a compliant bid, in other
words it met the request for the service. Secondly, having reached
the best and final offer stage it is not within the normal accepted
rules of contracting that we can go back to the contractors again
at that point.
Q81 Mr Jenkins: Okay. You were locked
into Capita.
Mr Lewis: We were locked into
Capita in this sense, and this sense only, once we had gone through
an exhaustive process of due diligence, of examination, including
a very particular examination of whether there were any reasons
to think the Capita bid should be rejected notwithstanding the
very substantial price difference between that and the more expensive
bids. At that point it was very hard to see that there was any
logical or rational or justifiable reason for taking a bid, an
alternative bid, which on the face of it was going to be more
than £100 million more expensive over 10 years.
Q82 Mr Jenkins: I understand that now,
that clarifies the situation as to why Capita got the bid. People
went on about the lack of consultation and the stakeholders said
in 3.13, page 23 "In particular they questioned: The Bureau's
proposed use of a call centre when customers' preferences were
for paper and on-line routes". There are four individual
points there. Later on it says, "The Bureau responded . .
. by holding the Customer Forum . . . and implementing a service
improvement plan after go-live when problems become evident".
What is the point in holding consultation before to try and sort
the problems out when you were told what the problems were going
to be and did not implement that until it was on-line.
Mr Lewis: First of all can I say
in answering that question there should have been much more extensive
consultation much earlier, that is absolutely clear, it is brought
out in the NAO Report and it is something which on behalf of the
Home Office I unreservedly accept.
Q83 Mr Jenkins: Mr Pindar, can I ask
you, you are now the contractor who has to deliver this system,
you were out on the road show, you got this information as well,
what did you do with this information because you could see a
disaster staring you in the face? What did you do about it?
Mr Pindar: Point one is we could
not see a disaster staring us in the face; point two, the response
that we put in to the tender, as Mr Lewis said, it was important
that our response was compliant and the tender documentation set
out the assumptions against which we were to bid; thirdly, it
was clear to us that the Agency had undertaken some consultation
and undertaken some work in terms of verifying the assumptions
they made; fourthly, it seemed to us a very reasonable strategy
at the time because there was a new government agenda towards
modernising government and there was a wish to encourage an electronic
channel; fifthly, there was also a marketing campaign behind the
e-channel in order to influence as far as possible customers'
behaviour. For a combination of reasons we felt that the approach
which had been taken early on was reasonable.
Q84 Mr Jenkins: Using your professional
judgment as a company you went along to a client, the client gave
you the contract, you understood the contract totally and you
said that you could implement it. There was no doubt in your mind
at all, even after the road show, there was any difficulty at
all?
Mr Pindar: I think it is very
important to cling on to the fact that when this contract was
underway the customers were not given the chance of having a paper
channel, that was something which was introduced part way through
the implementation process. At the time the assumption that 80%
to 85% of customers would choose the call centre option struck
us as a very reasonable assumption to make because it was largely
their only option. The fact that the paper-based channel was introduced
and again to respond to some of the earlier questions, the principle
reason why the price escalated to the extent that it did was the
job which was delivered at the end of the process was a fundamentally
different job than the one which was started. It is not a case
of being a sprat to catch a mackerel or anything else, it was
the introduction of the paper forms, which was introduced halfway
through the implementation, it was a fundamentally different business
process which Mr Herdan did in response to his customers' demands.
I think Mr Herdan's response was entirely rational given the situation
he faced.
Q85 Mr Jenkins: If I employ a professional
contractor and then they do exactly what I suggest or lay down
knowing that it would cause difficulty further down the line I
employ them because they are experienced, they have professionalism
and the ability, one of the things I would expect them to operate,
especially on my behalf, is to say "I need a pilot scheme
to see what will run and what will not run". Did you suggest
that?
Mr Pindar: It was always the intention
in the programme that there would be a pilot scheme, you generally
run a pilot scheme prior to go-live, not right at the start of
the implementation process because that would be inappropriate.
There was a pilot scheme in place at the end of the programme,
again I would agree with my colleague Mr Lewis on my left that
one of the learning processes for us I think is the pilot scheme
should have been longer and therefore from a perspective of things
to learn for Capita the one fundamental thing was, and again I
would agree, the go-live date should have been deferred for a
few weeks simply to give ourselves more time to actually undertake
that piloting. At the time the programme was implemented at the
start blank form discussion had not taken place therefore with
the best will in the world we responded to the tender documentation
in the most professional and the most studied and most considered
way that we could.
Q86 Mr Jenkins: You walk into it and
the system did not run well. What professionalism do we pay for
if you cannot deliver it?
Mr Pindar: We went into the bid
in a very considered and very measured way. We have been running
operations of this type for 17 years and generally speaking we
have a high reputation and a high track record. We have a 95%
retention rate of our customers which I think provides some evidence
of the fact they respect the professionalism we have. Again I
would repeat the comment I made earlier, the reason why the nature
of the project changed during the implementation was the introduction
of the blank form Channel. At the point that was tendered we tendered
for the contract and at the point that we started the implementation
of the blank form Channel had not been something which had previously
been conceived.
Q87 Mr Jenkins: Mr Lewis, can I ask you
one thing, you now have the Strategic Delivery Board, we have
in front of us different departments over time and one of the
things we always insist is if all of the risk reduction strategies
have not been developed and not been implemented and you give
the go ahead which then causes an overrun on cost and time—this
is the only Committee which instils this in the public sector
unlike the private sector, is your committee strong enough and
tough enough to stop this disaster hitting the rails again?
Mr Lewis: I very much hope so.
I chair it myself. My own background is actually a delivery one.
For six and a half years until a year ago I ran the largest executive
agency in Government and have personal experience of delivery.
The role of the Strategic Delivery Board which I now chair, with
the Home Secretary's agreement, inside the Home Office is precisely
to ensure that before a major new development is launched we have
taken the maximum number of steps that are possible to reduce
the risks of failure to an absolute minimum.
Q88 Mr Jenkins: Are you personally responsible
in the future?
Mr Lewis: I am personally responsible
to the Home Secretary for the effective working of that process.
Q89 Chairman: Mr Pindar, we know that
you put in by far the lowest bid and we all know about all of
the problems that subsequently transpired, why did you not stand
by your bid? Do you not think that would increase your reputation
as a supplier to government business?
Mr Pindar: The reason why we did
not keep to the same price was because the job we were eventually
asked to deliver was a very different one than the one we tendered
for.
Q90 Chairman: Your competitors put in
a higher bid because they were far more realistic about the number
of paper applications?
Mr Pindar: Our competitors put
in a higher bid because they have higher daily fee rates and their
profit aspirations are higher than ours and the cost of running
their business are higher than ours. We have been tendering for
the same sort of business for 17 years, we have a considerable
amount of experience at it. We never engage in loss-leading bids
because it is a very bad business practice. Again I will reinforce
the comments I made earlier, we have a 95% retention rate of our
customers. Indeed in our history we have only lost one material
contract on renewal. Those sort of statistics indicate we do not
go into a bid situation with a view of taking advantage of our
customer.
Q91 Chairman: Are you going to say sorry
to all of those employers who could not recruit and all those
volunteers who could not volunteer, the ordinary people, hundreds
and thousands of them, whose lives were wrecked because you put
in such a low bid which we now know was totally unrealistic?
Mr Pindar: I am pleased to have
the opportunity to say sorry to the people who have been inconvenienced
by the fact that the go-live did not proceed in the way that we
would have hoped.
Q92 Chairman: You were seven months late,
that is an understatement, is it not?
Mr Pindar: The fact that the go-live
did not go as we hoped had absolutely nothing to do with the price
of the bid. Again I would echo the comments which have been made
by my colleague, we believed—and we have seen many instances
where—the bid process was run in a professional and a diligent
way. Again I will emphasise the points which were made earlier,
the reason that the price has changed to the extent that it has
is because the nature of the job and the service that is being
received by 11,500 registered bodies is far wider and far more
complex than was originally envisaged.
Q93 Chairman: You seriously thought when
you put in for this bid that 80% of people would be making this
application by phone and individual applications by phone are
easily processed. It never occurred to you that as people are
applying for a job it makes sense for employers to group all of
these applications together and put them into the Bureau as one,
it never occurred to you?
Mr Pindar: At the time the bid
was put in that option was not open to them so there was no reason
why it should have occurred to us. It was not a channel which
was open to us. We run many, many operations for different people
and clients have a choice of how they wish to apply for whatever
service it is that they wish. At the time that the bid was submitted
these people did not have the opportunity to apply via the blank
form route.
Q94 Chairman: Mr Lewis, I think he is
firmly putting the blame at your table, you are the one to blame
as far as Mr Pindar is concerned.
Mr Lewis: I think it is entirely
fair to say that what we asked all of the bidders to bid for was
primarily a telephone-based service, that is absolutely right
and that is what they bid for. We were too slow to recognise that
was not a service which our customers wanted. By the time we realised
that, which was later than it should have been, not only did that
have inevitable consequences for the service which we were able
to deliver but it did mean inevitably that any bidder who had
won that contract was going to end up bearing far higher costs.
I would like to apologise on behalf of the Home Office for the
failures of service which undoubtedly occurred at the time the
Bureau was set up and subsequently. Having said that, and I do
want to say it very clearly, it is also worth saying that, as
the NAO Report fairly points out on the other side, the CRB is
now a more comprehensive and consistent service than its predecessors
and it is now reliably delivering over twice the number of checks
undertaken by the police each week under the old arrangements.
That balance needs to be there as well.
Chairman: There are one or two supplementary
questions that colleagues have asked to put.
Q95 Mr Field: Mr Pindar, you said only
once you have not had a renewal of your contract, there have been
contracts like the Individual Learning Accounts that did not get
to renewal, I wonder given your track record and the almost extraordinary
wish of the public sector to cascade money towards you how many
times do you pinch yourself when you wake up in the morning?
Mr Pindar: Firstly let me make
sure my words are recorded accurately, I said in the instances
where are contracts are up for renewal in respect of material
contracts, which can be defined as being more than 1% of our annual
revenue, we have only failed to renew that contract once in our
history. The ILA for its size was not in that category and as
you have rightly identified the contract was not renewed anyway.
I do not actually pinch myself in the morning for a whole variety
of reasons, one is I am actually very proud of what Capita has
achieved. Again if I may indulge you and your colleagues, when
we set this business up 17 years ago we had 33 people, we now
employ 20,000 people in this country in a whole variety of constituencies,
some of which I have to say had major unemployment problems before
we came along. For example in the likes of Blackburn we have committed
to create 500 new jobs in five years, we actually did it in under
two. In terms of the creation of employment I am very proud of
what we have achieved. In terms of our work with our customers
we have grown our customer base at that time from 12 to 25,000.
We work extensively in government. I am conscious of the fact
that we see reports in the media that sometimes things do not
go well. Some of the things we get wrong, when we get them wrong
we acknowledge them. In this instance here we demonstrated we
were very quick to try and put them right. In other instances
we do not get treated fairly by the media. Most significantly
in 97% or 98% of the contracts we run we run them successfully
and we meet our clients' requirements, which is why we get them
renewed.
Mr Field: Given Mr Lewis was responsible
and introduced the new deal I can see the attraction that Capita
has for somebody with that background. My colleague Mr Bacon told
me that in one well known magazine you are known as Grabita, I
wonder why it was that you did not sue when it is quite clear
you are not grabbing anything?
Mr Bacon: It is Crapita.
Chairman: Forget that.
Q96 Mr Field: There is no grabbing going
on. The public sector seems to have a predilection to push contracts
and push taxpayers' money your way.
Mr Pindar: The first thing is
that suing people does not tend to be a very constructive thing
to do. I would also hope we have a little bit of a sense of humour
and if people want to call us Crapita it is entirely up to them
and I wish them well.
Mr Field: Mine was a Freudian slip—hearing
it as Grabita. I will leave it there.
Q97 Mr Bacon: I was not proposing to
pursue that line but I thought I should correct the record. What
was the one material contract you lost on renewal?
Mr Pindar: One of the projects
we were fortunate enough to win was the organisation which was
charged with the implementation of the theory driving test. If
you think back to 1996 at the time there was a practical driving
test but now you also have to do a written test to get a driving
licence
Q98 Mr Bacon: How much was the contract
worth?
Mr Pindar: It was worth £15
million a year at the time.
Q99 Mr Bacon: 15, and that was material?
Mr Pindar: It was in those days,
yes.
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