House of Commons - Work and Pensions

Select Committee on Work and Pensions Fifth Report

2 The draft Section 82 Report

Content of the Report: Procedure Committee recommendations

24. In its 2001 Report the Procedure Committee set out different kinds of information which should appear in future Section 82 Reports.[25] We have assessed the content of the ESA Section 82 Report under each of these headings.

A BREAKDOWN OF THE PROPOSED EXPENDITURE

25. The Procedure Committee suggested that Section 82 Reports should contain "A detailed breakdown of the proposed expenditure together with the expected timing of this expenditure and the reasons why it is desirable to incur the expenditure."[26]

26. The draft Report includes a table in paragraph 11 setting out estimates of the expenditure month-by-month and under the following headings:

Developing the benefit processing system on JSAPS [Jobseekers Allowance Payment System]
Developing the environment that allows programmes to be tested
Developing the call handling system (PTP)
Developing the interface between the call handling and benefit system (PXP)
IS/IT team
Other systems
Telephony.

27. We asked officials who had validated these figures, whether they were estimates or maximum spends, and to what extent the Department expected the costs to vary once work had begun. We were told that the estimates had been produced by the project team, based on their development plans, and that they had been "exposed", through the Department's financial systems, to others in DWP.[27] Officials stressed that a reasonably cautious approach had been taken to how much would be needed month-by-month (ie asking for more rather than less) and drew our attention to the comments in the Secretary of State's cover letter that "the estimates may be refined".[28] They undertook to give the Committee "regular" reports on out-turn expenditure.[29]

28. While we welcome the detail in the table in the draft Section 82 Report, we are concerned that the figures have not been subject to a process of external scrutiny as this would provide us, the House and the Department with greater certainty. We recommend that the National Audit Office be asked to examine the reasonableness of the cost estimates for this project and that this be done as a matter of course for all future Section 82 Reports. We welcome the Department's commitment to give us regular reviews of the out-turn expenditure on the project and would ask that these be prepared every two months.

29. In additional information provided for the Committee the DWP was able to put the proposed preparatory spend on ESA in the context of total project costs (which are estimated to be around £295 million). We recommend that this information be included in the final Section 82 Report for the information of the House.

30. The Committee was also interested to explore the timing of the project as a whole. As we have previously indicated, the need arises because the project "requires a set period of at least 22 months"[30] and "Securing section 82 authorisation would allow the delivery of ESA from 2008 … [which is a commitment] announced publicly by the Government."[31] A time-line, which forms Annex A of the draft Section 82 Report, shows 'A-day' (the introduction of the new system) at the end of October 2008, which means starting work at the latest in January 2007.

31. On this occasion, therefore, Section 82 is being used solely to meet a Government timing commitment rather than as a measure to enable additional work to be done to maximise the chance of the project's success. Moreover, this follows delays of several months in issuing the Green Paper on Welfare Reform.[32] Officials defended the link to the timing commitment, relating it to the Government's policy aims in the welfare area.[33]

32. We have concerns: firstly, that there has been some confusion about the date of A-day, and the news that it is to be 1 November 2008, rather than 1 April 2008, may come as a surprise to some stakeholders; secondly, that there are additional risks which arise from working on the project as the Welfare Reform Bill passes through Parliament and; thirdly, about the nature of the 22-month timetable.

The date of A-Day

33. Annex A of the draft Section 82 Report clearly shows A-Day at the end of October 2008. Officials told us that ministers had committed to begin payment of the new benefit in 2008 but had not given any commitment to implementation in a particular month.[34] We think that the timing and sequence of events in 2008 should be spelled out by the Government to ensure that there is no confusion among providers, advice agencies and claimants, particularly as the national roll-out of Pathways to Work, another key measure in the Welfare Reform Bill, is due to be completed in April 2008.

Changes in specification

34. One risk which arises from the timetable is that if the detail of the benefit changes during its passage through Parliament, this could alter the IT specification. The draft Section 82 Report considers this and concludes that "If the Commons committee stage indicates that there will be substantial changes to the design of ESA the staged contracting approach would ensure that nugatory spend would be limited."[35]

35. Officials assured us that they were aware of this as a potential problem and were acting to reduce the risk. An Integrated Design Team had been established which brought the people working on policy, business and technology together. The Team was prioritising the work where there was most certainty, and building time in to make changes.[36]

36. We recommend that the actions being taken by DWP to mitigate the risk that the detail of ESA will change as the Welfare Reform Bill progresses through Parliament, leading to changes in the specification and wasted effort and expenditure, be set out in greater detail in the final Report. This should include a list of policy areas in which DWP assesses the risk of change to be particularly high, alongside an indication of where the areas of most certainty lie.

Timing

37. We also discussed with officials the 22-month total timescale for the project, which we judge as ambitious in the context of other large-scale DWP IT projects. Phil Bartlett, Jobcentre Plus Employment and Support Allowance Programme Director, described it as "very challenging but realistic". He stressed that the project was building on technologies already in use within DWP, particularly in the Pension Service, and that this meant staff were working with systems they knew. [37] However, the Committee has concerns that such a tight time-scale, in conjunction with the risk of changes to the specifications and DWP's record in large-scale IT projects, could lead to problems. With just two or three months delay to the 22-month timetable the 2008 government timing target would still fail to be met even having had the Section 82 funding agreed. This would be an unacceptable outcome.

FINANCIAL LIABILITIES AND UNAVOIDABLE EXPENDITURE

38. The Procedure Committee suggested that there should be information in Section 82 Reports covering the "Amount, nature and timing of any financial liabilities to be accrued" and an "Estimate of the unavoidable expenditure that would arise in the event of the subsequent bill not being enacted or being substantively amended."[38]

39. As we have already indicated, the draft Report seeks the House's agreement for power to incur "the financial liability accruing under contracts to be signed, in advance of Royal Assent to the Bill, by virtue of the power in section 82 of the 1999 Act."[39]

40. Further information is set out in a section on "Assurance of control". The DWP states that it "will be including termination provisions in all IS/IT related contracts so as to limit the exposure to nugatory expenditure",[40] continuing that "the termination provisions will mean that while the Department envisages £28.5 million of expenditure prior to Royal Assent it estimates that £9 million - at most - would be irrecoverable should Parliament exercise its prerogative to reject the Bill."

41. Officials told us that this part of the draft Report was not as clear as it could be and would be redrafted in the final Section 82 Report laid before the House of Commons. They advised us that the £9 million figure referred to the likely loss arising from cancelling contracts after the beginning of April 2007 (assuming they had a 30 day cancellation period).[41] It was unclear what proportion of the rest of the expenditure could be recycled in the event of cancellation.[42]

42. We note that the DWP has undertaken to redraft the passage in the draft Section 82 Report concerning financial liabilities and unavoidable expenditure, and look forward to seeing clearer information in the final Section 82 Report. The final Report should clearly set out the maximum liability that would be incurred in the event of cancellation.

CONTRACTUAL RELATIONSHIPS

43. The third category of information suggested by the Procedure Committee was "Details of any contractual relationships into which the Government proposes to enter in relation to the proposed spending."[43] The draft Report states that:[44]

"The Department is planning a staged approach to the contracting for the IT development. The first stage would cover the pre-April development and the second would cover the Build. The letting of the second stage contracts would be dependent upon there continuing to be a clear expectation of the Bill receiving Royal Assent no later than July 2007."

44. The draft Report adds:[45]

"The Private Finance Initiative is no longer the procurement route recommended by Treasury for IT projects. The Department will choose appropriate suppliers from its framework of IT contracts to deliver the full range of IT services required to implement the ESA system. The Department's best option for value for money and for delivering an effective ESA IS/IT system is to re-use existing system components where appropriate in the design and development of the new system and also to use standard operational services for live running of the new IS/IT system through the transformed arrangements with EDS and BT."

45. The details of the contracting arrangements are commercially confidential but clearly this is an important factor in the success of the project. When we spoke with officials they told us that lessons were being learned from previous experience.[46]

RISK ANALYSIS

46. The fourth category was a "thorough analysis of the risks, as well as the value for money benefits, of incurring preparatory expenditure."[47] The draft Report contains considerable material on risks. Paragraph 21 sets out the risks and benefits associated with Section 82 authorisation, under the headings of:

Nugatory spend if there is no Royal Assent
Nugatory spend if the Bill is substantially altered
Contractual commitments if there is no Royal Assent
Project delivery (a separate annex (C) breaks down project risks in further detail).

47. We welcome the amount of detail which has been included on risk management in the draft Section 82 Report. Officials gave us additional details of the Project Board and risk ownership and we were told that there were reporting lines up to DWP Executive Team level.[48]

VALUE FOR MONEY ANALYSIS OF ALTERNATIVES

48. The Chairman of the Public Accounts Committee recommended to the Procedure Committee in 2000 that Section 82 proposals "should be supported by a well reasoned case, which should set out the consequences, in terms of value for money likely to be foregone, of alternative courses of action (such as a paving bill; awaiting Royal Assent; delaying implementation)." The Procedure Committee agreed with this recommendation.[49]

49. When the Government responded to the Procedure Committee's report it sounded a note of caution, stating: "Where cases arise which clearly fall within the defined circumstances for utilising Section 82 the question of whether to apply the power may need to be decided at an early stage of the planning process, and this may mean that the information about the alternatives is available only in broad terms," although there was an undertaking "to provide the maximum information possible."[50]

50. There is no value for money analysis of the kind suggested in the draft Section 82 Report and we asked DWP to provide it. We were given a supplementary note which explained that the use of Section 82 powers was to meet the 2008 end-date, something which none of the other three options could achieve; adding "Given that we only had one option we did not undertake a financial assessment of the others."[51] There has been no attempt to quantify the relative costs and benefits of different approaches. We are disappointed that the DWP has not attempted to support this case with a value for money analysis of the alternative courses of action. We recommend that additional explanation about this is included in the final Section 82 Report. In addition, we are concerned that the DWP could not provide the Committee with specific value for money analysis of the benefits of achieving the 2008 deadline and the costs associated with not doing so, information important to judging the justification of using Section 82. Our concerns should be reflected in the final Report.

Wider contextual information for the House

51. When the Government submitted evidence to the Procedure Committee's inquiry, it noted: "A distinction needs to be drawn between the information that is required by the terms of Section 82 to be provided in the report laid before the House, and information which would aid the House in its consideration of the Report."[52] However, it conceded that "the Department recognises that this information alone may not allow the House of Commons to appreciate the whole of the project"[53] and concluded that in future it would endeavour:[54]

"To make available to the House, in any future reports, as much financial information on whole projects as is consistent with commercial confidentiality, so that the House will be able to make informed decisions on the request for the passage of the Section 82 Report."

52. This was a point emphasised by the then Parliamentary Under-Secretary of State, Department of Social Security when she gave evidence to the Procedure Committee in 2000: "I think more of that contextual information would be helpful to Parliament, and we have undertaken to provide that."[55] The Committee welcomed this assurance.[56]

53. The Department has included useful contextual information in the draft Report, in particular in Annex B which sets out the background to the Employment and Support Allowance. We welcome this. We note that this draft Section 82 Report, with 28 paragraphs and three Annexes, is considerably longer and more detailed than the draft presented to the Social Security Committee in 2000 (which was 13 paragraphs long and had one Annex).

54. The jury is still out on the use of the Section 82 procedure, especially after such a bad precedent as the 2000 CSA Section 82 Report (see paragraphs 10-13 of this Report). We have some reservations about this request, particularly about the challenging timetable of the project and the lack of external scrutiny of the costings. We have also made a series of recommendations to improve the content of the draft Report. We hope that the additional information we have sought from DWP will mitigate our concerns and that the Government will lay a final Report before the House of Commons which reflects our recommendations.

25 Procedure Committee, Section 82 of the Welfare Reform and Pensions Act 1999, paras 29 and 30 Back

26 Procedure Committee, Section 82 of the Welfare Reform and Pensions Act 1999, para 29 Back

27 Q 76 Back

28 Q 77 Back

29 Q 83 Back

30 Appendix 3A, para 9 Back

31 Appendix 3A, para 10 Back

32 Work and Pensions Committee, Third Report of Session 2005-06, Incapacity Benefits and Pathways to Work, HC 616, para 3 Back

33 Q 51 Back

35 Appendix 3A, para 21 Back

36 Q 60 Back

37 Q 46 Back