Examination of Witnesses (Questions 80-99)
MR JOHN
OUGHTON, MR
PETER FANNING,
MR HUGH
BARRETT, MR
MARTIN SYKES
AND MR
DAVID ROSSINGTON
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 OGCbuying.solutions 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 OGCbuying.solutions
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 OGCbuying.solutions 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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