Examination of Witnesses (Questions 640-653)
12 JANUARY 2005
SIR BRIAN
FENDER AND
DR ADRIAN
LEPPER
Q640 Mr Turner: But private sector universities
across the world control admission, they control the programmes,
they presumably limit the available teaching resources to individual
students according to some agreement. What I do not understand
is why it was felt that this could not be a private sector operation?
Sir Brian Fender: I am sorry,
it could. There is no difficulty of operating in that way through
UK e-U as a public/private exercise or a fully commercial one.
What I was raising was an issue which you can easily see in e-Learning,
which is that, because of the flexibility in delivery, you can
take part of the programme and sell it to who wants it when they
want it. It is this ability to learn when you want to as a learner
which is one of the attractions of e-Learning, and it also means—and
there is some evidence that is what students want to do—that
you will take only the bit that you need. Sometimes you might
want the whole lot, including the delivery programme, but in other
cases you might not.
Chairman: I am afraid we are running
out of time for this session and we have got two or three important
questions that we want to quickly ask you, Sir Brian and Dr Lepper.
Q641 Mr Turner: Fair enough. I will try
and limit it to one further question. There is nothing inherently
contradictory about this project being run by the private sector.
Sir Brian Fender: No.
Q642 Jeff Ennis: Sir Brian, why was UK
e-U reporting directly to the Minister every six months if HEFCE
was running the UK e-U project and it was the role of the holding
company to keep them in the account?
Sir Brian Fender: I did not catch
the first part of your question.
Q643 Jeff Ennis: In previous evidence
we have been told that UK e-U were reporting directly to the Minister
every six months. Why were they doing that if it was the role
of the holding company to do that?
Sir Brian Fender: I think "reporting"
may be the wrong word. I think UK e-U almost certainly recognised
that the DfES and the Funding Council were, of course, important
stakeholders, so they went and they talked to them. I think I
would have done the same to be honest. The formal route goes through
to the holding company—there is no doubt about that—but
they took an opportunity to go and explain what they were doing
both to the Funding Council and the DfES. That is sensible; they
had the money. It would be wise of them to keep those bodies up-to-date.
Q644 Jeff Ennis: Did the Minister ask
them to do that or was it just a courtesy thing that they did?
Sir Brian Fender: I have no idea.
I should have thought, just as I have said, there was an advantage
to the UK e-U in going and explaining to the principal stakeholders,
more importantly than the holding company, what they were up to,
I would have thought the Minister or ministers and the Funding
Council were equally interested in what the e-Learning company
was doing, I mean the operating company.
Q645 Jeff Ennis: Have you any thoughts
why the holding company did not identify any earlier the major
failings that patently became obvious later on from UK e-U?
Sir Brian Fender: I have said,
and this is an issue, you always have a subsidiary company, which
in effect, UK e-U became; and I know that in other worlds you
have this delicate judgment between giving them a chance to get
going, giving them encouragement and then stepping in, if you
like, and steering, but I can tell you, that judgment is a really
difficult one. If you do let them off and go native too far, you
can get into difficulty. If you stifle them by over managing them
through this supervisory role, the parent company squashing, if
you like, the initiative of the subsidiary company, that clearly
is a bad thing too. We tried to find a route between them. I do
not have any doubts that we would. As I started to say, in June
we thought the structure should be changing in terms of the nature
of the funding and I think we go on from there that, as a consequence
of that, the supervision would have to change. I think that is
inevitable. I say, in practice, I think the model that would have
had to be adopted had UK e-U gone on was something much closer—I
am going to use the Met Office as an example—significantly
public money fulfilling a public and an important public purpose
but at the same time, under strict circumstances, operating in
a commercial way.
Q646 Chairman: Dr Lepper, the thing that
would stick in to core for a lot of my constituents is the fact
that we had a Chief Executive and a Chairman. The Chief Executive
was paid £180,000 a year. That is quite generous even in
terms of a Vice Chancellor, is it not, Sir Brian?
Sir Brian Fender: I think in earlier
correspondence it was said it is in the upper region of Vice Chancellor
pay.
Q647 Chairman: As a holding company,
did it ever cross your mind when there were so few students, the
platform was not even delivered, that this bonus payment was a
bit rich coming from taxpayers' money?
Sir Brian Fender: If you ask me
personally I was not happy about the bonus payments that were
made. I do think we had to recognise that we had set this body
up as a commercial operation to look to the outside world as if
it was a start-up company and had recruited people in who had
those skills and who would expect that type of remuneration package
in the type of companies for which they sought employment.
Q648 Chairman: But when Mr John Beaumont
read out his target it sounded like the job. All of us on this
Committee were astonished. He went through: "Do this. Market
it. Get the platform". It was the job, and out of that came
a bonus of £40,000. That astonished the Committee. Did it
not, Sir Brian, worry you?
Sir Brian Fender: I am afraid
that I realise that it is normal practice to do that. What it
was doing, in effect, was setting targets which were milestones
for the progression of the project. You might say it is the job.
It is customary to have bonus payments which should be sufficiently
challenging, I do not deny that, and it was not our job to scrutinise
those and it was not our remit to do that. I would have expected,
because I do that in another world, to set challenging milestone
targets and those to be achieved in order to get the bonus, but
the notion of bonuses for something intermediate before the delivery
of the students does not altogether surprise me. Of course, if
UK e-U had gone on into 2004-05 in terms of delivery, then, of
course, I would have expected bonus payments to be heavily weighted
towards the recruitment of students.
Q649 Chairman: Absolutely, but you were
there as the holding company. You are not only, as I described,
a bit of a buccaneer and entrepreneur, you are also a diplomat.
I have really got to push you. Do you think this enterprise should
have been given a little bit more time?
Sir Brian Fender: Our advice on
the lines of the PA Consulting report was, of course, to try to
maximise the value we could get from the company and what had
gone into it so far. I think that implied more time. It is no
good dealing with hypothetical situations.
Q650 Chairman: Howard Newby must have
phoned you up and said, "I think we are going to have to
pull the plug on this, Brian." What did you say?
Sir Brian Fender: We gave him
advice which said— No, it was not quite as simple as that;
life is not. What they had and had considered were effectively
two options: one was immediate termination and the other was a
restructuring wind-down operation and I think within that second
option, which we were in favour of, we wanted, of course, as much
restructuring and as little wind-down as possible—I think
that is fair enough—basically to extract as much as one
could from the work that had gone in, but you do then get into
a judgment between that, and it was not for me to second guess.
They had the money. The Board of the Funding Council is a highly
competent Board with a lot of experience on it. They are entitled
to make the judgment. It is their money. Am I being diplomatic?
Q651 Chairman: I have got the message.
Dr Lepper: Would it help if I
read out what the Board actually reported to HEFCE at this time?
Q652 Chairman: Yes?
Dr Lepper: It said, "The
Board was in no way surprised by the current trading position
of UK e-U, nor that problems have arisen in the implementation
of the learning platform; neither reflected adversely on the commitment
or competence of the senior management or staff of UK e-U. The
Board did, however, recognise, as acknowledged by UK e-U, that
the projections of students under the revenue had no objective
base and were subject to a high level of uncertainty. The projections
could be exceeded, but significant risk existed that a shortfall
would occur. In these circumstances, the break-even point for
UK e-U would recede further into the future with the prospect
for private financing receding in parallel and additional financial
support from public funds would be necessary if UK e-U were to
remain business." That is what we reported in December 2003
to HEFCE. Obviously in that situation it would be for HEFCE to
decide if it wished to continue and provide additional funding.
We have given our advice.
Q653 Chairman: What was your personal
view? Would you like them to have had more time?
Dr Lepper: I think I would have
preferred there to be more time to resolve this issue because
I think the whole thing remains unresolved at the moment as to
whether it could have succeeded or not. It also remains unresolved
what is the role of e-Learning in distance teaching for UK universities.
Chairman: Sir Brian, Dr Lepper, it has
been a pleasure to have you before the Committee and we have learned
a lot in the process. Thank you very much indeed.
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