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Helen Goodman: Does the hon. Gentleman agree that part of the issue is not the overall cost but the point at which we are spending money on big projects? We are not spending it early enough. We are not investing early enough in skills within the public sector. Hence, we find ourselves spending more later on.

Mr. Bacon: We find ourselves spending more later on in spades, and wastefully. In the recent exercise with St. Mary's, Paddington, the bidding round failed, cost £50 million and produced nothing of worth. They are having to go back and do it all again. We recently heard about the problems with Bart's, with potentially £100 million of fees lost.

The hon. Lady anticipates a point that I intended to make later by drawing an analogy with the way in which defence procurement works. As we have said in some of our reports, the assessment phase should receive a greater proportion of the resource that goes into the project. Designers are having to respond to pressures from the leaders of consortiums, who are usually a combination of the building contractors and the banks, to build to the lowest cost or to facilitate the easiest building method. That may be sensible or it may be in the best interests not of the client but of the consortium that has to deliver it. The client is interested in the best possible hospital within the available budget for patients.

The problems are so widespread that the Treasury cannot say that it is not a problem and neither can anyone else. It is a significant problem. The question is what do we do about it? RIBA, along with others, has evolved what it thinks may be part of the answer. It has called it smart procurement, which leads directly to the point that the hon. Member for Bishop Auckland was making. In smart acquisition, part of the emphasis is on spending more of the resource earlier.

In our third report of the 2005–06 Session, HC410, we said in terms:

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That is for defence procurement. I do not want to promulgate a particular percentage, but it is clear that the point is analogous to what is going on in PFI hospitals.

Essentially, it is about getting the design team much nearer to the client. I have talked to the institute and it does not appear to be a case of architects or other professionals talking up their own book, which might be expected from any professional body. That is not what the institute means. It means getting civil engineers, quantity surveyors and others to work closely with the relevant hospital trust at a much earlier stage to eliminate problems by having a much closer understanding much earlier of what is required. That effectively allows the client to drive the process more strongly, with greater information and control, and power over the outcome.

In that context, it is interesting to consider the situation in Northern Ireland. As the Chairman said earlier, we have had many reasons to look at Northern Ireland, including the Navan centre, the sheep annual premium scheme and the recent Jobskills project. Many of the projects we have looked at have been a disgrace, but the Department for Health, Social Services and Public Safety, especially the Health Estates Agency under the management of John Cole, is blazing a trail. Because of the slightly different context in Northern Ireland, it has gone further down the path and I urge the Financial Secretary and other Ministers to examine what has been done there and whether the rest of the UK could learn some lessons about how PFI can be conducted.

The issue is not only about designers: it is about the whole built environment sector coming together to produce better outcomes for taxpayers. The initiative that the institute has evolved is now at an advanced stage and preliminary discussions have already taken place with the Treasury. The institute has talked to public sector clients, building contractors, civil engineers, quantity surveyors, building surveyors, facilities managers, insurers and banks, and is looking to produce a final cross-industry position paper. My plea to the Financial Secretary is that the Treasury should engage with the process seriously. These are welcome moves by the industry to produce a better, more mature and more efficient PFI market. I urge the Financial Secretary to meet the main players who, in my view, are seeking genuinely to eliminate problems and produce better results to turn PFI into something that delivers even more value for taxpayers who are, after all, paying for it.

5.42 pm

Sarah McCarthy-Fry (Portsmouth, North) (Lab): Like other hon. Members, I wish to pay tribute to the Committee administration. Nick Wright and his colleagues have been extraordinarily helpful to new members like me. Nothing is too much trouble for them, even if some of our questions at the beginning must have been very irksome to them. The hon. Member for Gainsborough (Mr. Leigh) has proved to be a most assiduous Chair, taking care to make new members feel welcome, and I thank him for that.

The NAO have also provided an excellent service. I particularly welcomed the morning that new members spent with the NAO, which certainly gave me a greater
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understanding of the auditing process and how the team operates, and also admiration for the sheer volume of reports they produce. The briefing papers produced by the NAO are a valuable resource for hard-pressed MPs and serve as guidance on the best way to probe with our questions.

As a new member, I approached my first meeting of the PAC with some trepidation, as I knew its fearsome reputation. I have to say I was not disappointed. The style of questioning proved to be as uncompromising as I had been told, but now I have a few sessions under my belt I can see why that should be so. Although I hope that I have never been rude or discourteous, I have sometimes been frustrated if I feel that the witnesses are evading the issues, or, more often, spinning out their answers because we are time limited. The object of the evidence sessions after all, is not for witnesses to escape unscathed, but to be called to account for how they are delivering value for money for my constituents and the constituents of every other Member in this House.

Mr. Leigh: I just wanted to put on the record that since I have been running the Committee, we have tried to stop personal abuse of senior civil servants, which was a feature of the Committee before. I know that these debates are noted in Whitehall, so I wanted to say that while it is important to be robust, we are more polite than we were even five or 10 years ago.

Sarah McCarthy-Fry: I was not there 15 years ago, so I do not know what it was like then. Recently in The House Magazine, my hon. Friend the Member for Great Grimsby (Mr. Mitchell) likened the Committee, after his first meeting, to

I certainly do not recognise that description.

I am delighted to have been appointed to the Public Accounts Committee because it gives me the opportunity to examine a wide variety of subjects—far more than if I served on a Select Committee that hones in on just one matter. I have learned since becoming a Member of the House that my constituents expect me to be an expert on absolutely everything and the Committee is an excellent training ground for that.

I was taught during my accountancy training that value for money is the three E's: economy, because one does not pay £5 for something when it can be bought for £3; efficiency, which is when one gets the absolute best use from resources without wasting any of them; and effectiveness, which is delivery on all policy goals. The Public Accounts Committee drives at how value for money is achieved.

Before I entered the House, I worked in the manufacturing industry in the private sector. Our objective was to deliver shareholder value in a competitive environment. The tools that we used over many years to deliver that were effective risk management and project management, which were raised by the hon. Member for Gainsborough—yet another example of cross-party consensus. If we get those two things right, we will have gone a long way towards ensuring that British taxpayers get the maximum bang for their buck and that high-quality public services are delivered to all who need them.
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We are short of time for the debate, so I shall focus on just two Committee reports. The 15th report of the 2004–05 Session, which has been mentioned already, was called "Managing risks to improve public services". Risk management has quite rightly risen high up the agenda of the delivery of public services because it enables resources to be prioritised to deliver the best outcomes to the majority of people. Risk management will never completely eradicate unpleasant surprises, but when it is used effectively, it can minimise them. It enables Government Departments to plan proactively, rather than just reacting.

Government Departments now share delivery with a huge range of partners outside the traditional Government machinery, such as local authorities, charities, voluntary organisations and the private sector. The Government do not have direct control over how those organisations operate, so good risk management is essential if the partnerships are going to work effectively for the public. Many of those partner organisations work under service level agreements. It is vital that proper risk assessment is done at the start of the process so that all possible contingencies have been considered when the agreements are drawn up.

The report showed that at the time at which it was written, there was some way to go before risk management would become embedded in the culture. In June 2004, only 10 per cent. of Departments considered that the process was fully embedded, although three quarters stated that it had been implemented in key areas. I was especially worried that the report showed that just 45 per cent. of Departments in the NAO survey said that they identified and assessed risks in policy making. That seems to be pretty fundamental because if they do not identify whether there is sufficient capability and expertise to implement a policy and measure that against a range of possible outcomes, they are not giving themselves a fair crack of the whip. They are then operating crisis management, not properly planned management.

If risk management is not embedded in the culture, there is a risk that innovation will be stifled. We all realise that we have to examine new and innovative ways of delivering public services, especially if we want to target those services at hard-to-reach groups. However, we can do that only if we are aware of the risks involved in developing new ways of delivery and have robust processes to manage those risks. I would like us to tap into the undoubted talent of our Government employees to come up with innovative ideas, but before they will do that, they will need to feel that the Government have a positive attitude towards managed risk taking. I thus welcome the Treasury response that competence in risk management should be recognised in the context of the professional skills for Government programme. I am also encouraged by the agreement of the Treasury to the PAC conclusion that it has a key role of promoting continuous improvement in risk management and embedding risk management into spending reviews. I cannot emphasise enough the importance of embedding risk assessment and risk management at a sufficiently early stage—that point has already been raised—and I would hope that that is understood.
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Moving on to project management, the third report of the 2005–06 session has already been mentioned—the Ministry of Defence major projects report. Having been involved in two major complex projects in my former business life, I know only too well the importance of effective project management. Risk management is linked to that. How well one has planned for contingencies is usually an indicator of how effective one's project management is, particularly on complex projects with many dependencies.

Breaking the project down into manageable units with clearly defined tasks and clearly defined ownership for those tasks before the project starts is vital. Setting realistic time scales for tasks and getting the balance right between realistic time scales and adequate contingency is also vital. The project leader must be accountable and must have sufficient authority and leadership to keep on top of the project, motivate the team, avoid a blame culture, encourage innovation and keep the project on track.

In project management, as in risk management, work put in at the early stages pays huge dividends. I echo the point made by the hon. Member for South Norfolk (Mr. Bacon), who has left the Chamber. The PAC's conclusion in the major projects report was that the amount of work undertaken in the assessment phase was still not sufficient to enable sensible investment decisions to be taken, particularly where the guidance stated that up to 15 per cent. should be spent on assessment, particularly of complex projects. The onus should be on those approving investment in large complex projects to ensure that sufficient time and resource has been spent on the planning phase.

I note the Treasury response that the effectiveness of the assessment phase cannot be judged by the amount of time spent in that phase. Of course the amount spent may not have been spent wisely, but it is an indicator, and one that should carry a great deal of weight. As a former financial controller myself, I can only congratulate the PAC on its recommendation that financial controllers should always be part of the main project team. In my experience, the presence of the person controlling the purse strings is a very effective deterrent to allowing the costs to overrun as the first resort, rather than as the last resort, after every other alternative has been explored.

The Treasury has acknowledged that there is a shortfall in project management skills and key leadership competences, and has proposed a review of the leadership development scheme to counter this. However, speed is of the essence, given the large sums of money being spent. The proposed completion of the review in April 2006, following which there will be an ongoing programme of improvements, is too slow. It means that we have already missed the boat on a number of projects.

There is a further report on major Ministry of Defence projects to the PAC next week and I await with interest our interrogation of witnesses to see whether they think improvements have been made in risk management and project management, the two key factors that I and other hon. Members have identified in delivering value for money, not just in the MOD, but across all aspects of Government.
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5.52 pm

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