Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 80-99)


17 MAY 2006

  Q80  Chairman: The other thing that has gone up is the bonus payments. I notice that they have gone up from £284,000 in 2003-05 to £325,000 in 2004-05. Would you like to comment on that? How demanding are those targets?

  Mr Barrett: There are two questions: why has the number gone up; and how demanding are the targets. The reason that the bonus payments would have gone up is twofold. These are payments made to everybody in the organisation. Broadly speaking, it is 5% of the pay bill so, if we hit the ministerial targets that the Minister sets for us at the beginning of the year, then we are able to pay our staff a 5% bonus target. There has been a small increase in the average pay of people in the organisation and there has also been a small increase in the number of people in the organisation. I do not have the sums in my head but would imagine those two effects, taken together, would explain the volume increase. In terms of how stretching are the targets, I believe they are stretching. We have a track record of meeting them every year. My organisation has grown its market share by about 30% per annum for the last four years. You would be very proud of an achievement like that in the private sector in a competitive marketplace. I think they are stretching targets but not unrealistically so.

  Q81  Chairman: How stretching are they? You say they are stretching. The savings target increased 33% in 2005-06 over 2004-05 but it is only going up 25% this year compared to last year. It is not actually stretching; it is declining, is it not?

  Mr Barrett: It is a stretching target. The savings target is essentially based on the prices that people using our arrangements pay compared to the average in the public sector.

  Q82  Chairman: Should that not be accelerating?

  Mr Barrett: No, because what happens is that our prices act as a benchmark to the rest of the public sector. If we depress prices in the marketplace, the average comes down across the marketplace and therefore it becomes more difficult to make price savings.

  Q83  Chairman: You are also widening your reach all the time across the public sector?

  Mr Barrett: We are indeed.

  Q84  Chairman: Would we not expect the increase in savings actually to accelerate?

  Mr Barrett: "Expecting" is not the right word. We are absolutely focused on delivering the maximum amount of savings that we can. When we look at the average pricing in the marketplace, with the increased competition that we are engendering through our framework, I think an increase to £500 million, which is the target that the Minister has set us for this year, is stretching but achievable.

  Q85  Chairman: These targets keep measuring the same performance indicators over the years. Do you not think it is time they were looked at again?

  Mr Barrett: I think not. There are four of them. The first is savings, and that is what gets people in my organisation out of bed. They believe they make a difference. They personally deliver almost £1.5 million of savings per head if you pro rata it back. That gets people out of bed. Customer satisfaction: even if it were not a ministerial target, it would have to be a target for the organisation. You cannot succeed in a competitive marketplace unless you are focused on your customers. Our achievement of over 90% customer satisfaction is absolutely a prerequisite for success in the future. Covering our costs is a statutory requirement. We have to make a return on capital employed and payment back to the Consolidated Fund. In the year just gone we will probably make a payment of just over £1.5 million back to the Consolidated Fund, representing the capital employed in our business. We have a statutory obligation to do that.

  Q86  Chairman: Why is that flat over the years?

  Mr Barrett: That target is set by our Treasury Ministers and represents their view of the balance of risk in our business.

  Q87  Chairman: The final target is the ratio of internal costs to savings.

  Mr Barrett: Yes, at 5%.

  Q88  Chairman: You have stretched your reach right across the public sector. Why is that still 5%?

  Mr Barrett: That is a less stretching target, to be honest. Earlier I said that bonus payments are based on our achievement of ministerial targets. We do not count that one in for the bonus payment. We recognise that one is fairly easily achievable and so we do not incentivise people.

  Mr Oughton: Since I have to make a judgment in advising the Minister on how stretching these targets are and a judgment on the performance of the organisation, it is worth saying that my own view on the balance of the targets is that the area of greatest untapped opportunity where I really want to encourage to move is into that part of the market where spend is at the moment not regulated but done by individual organisations; it is not part of the bigger deals. Getting people inside the aggregated deals in or in the local authority consortia in my view will deliver much greater benefit for a greater proportion of total public sector spend than trying to drive a percentage or two more on the margins. It is a combination but the judgments on where the effort should be came out as I have described.

  Q89  Chairman: So you advise Ministers on the target they set for you?

  Mr Oughton: I would take a view on the targets for because the Chief Executive of that organisation reports to me as well to Ministers.

  Q90  Peter Viggers: I have a few questions on project and programme management and your Gateway Review process. Some projects appear to contribute both to efficiency and to procurement targets. In neither case does the cost of the new system appear to be taken into account. Can you comment on that? Do you get double savings but no costs?

  Mr Oughton: You would not get double savings, Mr Viggers. The value-for-money targets that are set for the Office of Government Commerce cover Central Government procurement, project management as you rightly say, negotiation of deals. Elements of the benefits in that £3 billion value-for-money target that we are set also contribute to the efficiency programme, but we do not count it twice; we count it only once.

  Q91  Peter Viggers: The methodology for calculating savings was approved by the National Audit Office. Have they approved the application of the methodology?

  Mr Oughton: Yes, they have. This is not just a single conversation. We work closely with the National Audit Office both on delivery of our value-for-money target every year and on the development of our measurements on the efficiency programme, so they stay engaged with us throughout.

  Q92  Peter Viggers: NAO have commented that projects may not enter into the Gateway project at the right moment and may leave too early. Would you like to comment on that?

  Mr Oughton: I think that is a fair observation. One of the ways in which I am trying to apply the more demanding approach that I described earlier is by insisting that with the key major projects, the top 20 projects if you like, the ones that are really high profile and big spenders, we have a much clearer agreed programme of gateway reviews. That is so that the senior responsible owners of those projects in departments undertake the gateway reviews at the right stage, and at every stage from gate 0, the strategic assessment at the beginning of the programme, all the way through to gate 5 where we assess the benefits that have been delivered from the completed programme, I am now insisting that within 12 months of the gate 4 assessment, which is the point at which the project is on contract and delivering, we do have a gate 5 process. What I am saying to departments is: you do not have any choice or discretion about whether you do the gateway review now, and, frankly, neither do you have any choice over when you do it; it should be done at the appropriate point in the development of a project's life.

  Q93  Peter Viggers: In the Treasury's 2005 Departmental Report, you had a target of ensuring a 70% success rate on IT and naval projects. You reported slippage in 2005. What is the situation in 2006?

  Mr Oughton: Were you referring to IT projects?

  Q94  Peter Viggers: Yes, IT and naval projects on time and on budget.

  Mr Oughton: I am not sure I can give an answer to that question. Can we give you a note on that, Mr Viggers?[1]

  Q95 Peter Viggers: Yes. We can recalibrate the question perhaps and make it clearer. Some projects (and the battle honours of the Gateway Review include the Child Support Agency and tax credits, I understand) have gone wrong, despite green ratings. What have you done to analyse the problems and to try to ensure that performance is improved?

  Mr Oughton: As I think I may have said to the Committee before, the Gateway Review process is not a substitute for sound management of a project the Gateway Review is a snapshot assessment at a particular point in the development of a project. It identifies issues that need to be addressed straight away. The colour rating, in a sense, is not telling a project: this is a project in failure if it is a red rating. It is saying: here are some issues that are urgent and need to be tackled now. It is a time-based assessment. The responsibility for implementing the results of a Gateway Review of course rest with the project itself, with the senior responsible owner, and with the programme manager. What are we doing to try, first of all, to learn the lessons from projects that have gone before, and then apply those lessons more directly? First of all, we are picking off the lessons from the very many gate 0 reviews that are now done on programmes at the outset, at the strategic assessment, and saying that as we identify the problems of a new programme, we can see that many of the problems occur in that set-up phase. It is the point at which a programme or a project is started. We have developed a product, if you like a service, which we use right at the outset of a project, a workshop approach with the project in question, to say: let us now look at the experience of projects that have gone before and apply that at the initiation phase so that you start in good shape, rather than having to fix a good solution retrospectively, once your project is under way. It is a new offering that we have developed to help get the project right at the outset.

  Q96  Peter Viggers: What is your assessment of the level of project and programme management skills in local government and in the National Health Service, and how will you address those sectors' needs?

  Mr Oughton: Certainly in local government it is stretched quite thinly, I think it would be fair to say, and that is not my judgment but the judgment that chief executives in local authorities have given me. In the course of last spring and summer, I paid something like eight or nine regional visits and talked to over 100 chief executives in local authorities. A very strong message came through from those visits that programme and project management skills for big projects were very stretched. What are we doing there? We have accredited the local government sector to run gateway reviews. The four Ps organisation—Public Private Partnership Programmes—now undertakes gateway reviews in local authorities. Again, that helps identify the problems and helps to fix those problems. We are trying to spread our good practice out into local authorities. In the Health Service there is some very good evidence of project management skill. You would expect to see that in some of the very large substantial trusts undertaking major development and PFI programmes and projects, but again we are applying the gateway review process. In the last three months, I have paid six or seven visits to major hospital trusts, the London Ambulance Trust and a number of regional hospitals, foundation and non-foundation. What I am seeing there is good skill but a desire to use the gateway review process, which we have accredited in the National Health Service, so that it is also used to develop good practice.

  Q97  Peter Viggers: You must find some institutions which do not grasp the opportunities you are offering them as willingly as you think they should

  Mr Oughton: Of course.

  Q98  Peter Viggers: Do you have the levers you need to bring pressure to bear on them?

  Mr Oughton: I think I do now. If we had been having this conversation two years ago, I would have said to you that whereas in Central Government of course I have a very strong lever and a strong connection that comes directly from the authority that the Prime Minister and the Chancellor have given me to move this programme forward, in the wider public sector I had only persuasion, encouragement and exhortation, if you like. The Government has made it very clear, again with the leadership of the Prime Minister and the Chancellor on this issue, that choosing not to improve and poor performance is not an option in the wider public sector bodies, and so in a sense we have upped the ante in terms of the message that we are delivering to the wider public sector. We are also working with the wider public sector, not simply challenging and pushing, but also encouraging and sharing good techniques. To give you one very brief example, and I am conscious of the time, Chairman, on procurement we have developed a process in Central Government for challenging public sector bodies that choose to undertake procurement separately from the major deals that we have set up. We go through the European Journal; we find an advertisement and say, "That is very interesting. They are out there procuring electricity. There is a deal already set up which gives good returns". So we go and challenge that public sector body and encourage them to join the deal. We are doing that in the local authority sector, too, and the local authority sector has embraced that and welcomed it as a very useful technique for improving their own performance.

  Q99  Mr Gauke: The range of public sector bodies that has a role has been extended. How do you think the OGC has coped with that?

  Mr Oughton: I think it has been a tough challenge for the organisation. We did not ask for increased resources at the point where we took on this wider remit. My challenge to the organisation is that we have to work more effectively. As I said earlier, Mr Gauke, we have had to ensure that we work not only directly with some wider public sector bodies but also through, if you like, agents or those who work in those sectors. I have a very strong relationship, for example with the Chief Executive of Lewisham Council, the local authority nominated champion on efficiency, and with the Chief Executive of Norfolk Council, the local authority nominated champion on procurement, and through their good offices we can work closely with the sector and maximise the impact of what is admittedly a very small capacity in the Office of Government Commerce to take on this task.

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