Examination of Witnesses (Questions 803-819)
MR TONY
COOPER, MR
SIMON VRY
AND MR
IAN HEWETT
27 NOVEMBER 2006
Q803 Chairman: The witching hour of 4.45
on Monday 27 November has come round and we move forward with
our further inquiries into the Rural Payments Agency. Formally,
and for the record, can we welcome Mr Tony Cooper, the Interim
Chief Executive of the Agency, Mr Simon Vry, the Interim Chief
Operating Officer, and, the only one who is not interim, Mr Ian
Hewett, the Operations Director; gentlemen, you are very welcome.
You are not going to tell me, Mr Hewett, that you are interim,
are you, just to complete the three?
Mr Hewett: Not to my knowledge,
Chairman.
Q804 Chairman: We do not like to
be the bearers of difficult news. I think the Committee had hoped
that by now we would be coming to the end of our inquiry, but
just, as I say, for the avoidance of doubt, the Committee still
lives in hope of hearing from Mr Johnston McNeill, the former
Chief Executive of the RPA, and we are in correspondence with
him. Also, next Wednesday, for those who like to know what the
forthcoming attractions are, we will be hearing once again from
Sir Brian Bender, the former Permanent Secretary in Defra, now
the Permanent Secretary in the Department of Trade and Industry.
We are, I suppose, as they say, resummoning him to the witness
stand, because there are certain issues which have emerged, which
occurred on his watch, and we would like to probe him in a little
more detail on that. Once that is done I hope we will be able
to start drawing our inquiry to a conclusion. Gentlemen, you are
very welcome. I would like to start perhaps with Mr Cooper, with
whom I have had the pleasure of talking about the Agency and what
is happening, at a meeting which Lord Rooker organised for Members.
I was pleased with the workmanlike way in which he approached
answering the questions on that occasion, which bodes well for
what we are going to be doing. Can I ask you, Mr Cooper, when
you came in as Interim Chief Executive, why has the Agency got
an Interim Chief Executive? There is a sort of air of lack of
permanence to it. Is it because you have particular skills in
interim management, or that you are just passing through, because
this was a difficult job to do and the pass came to you?
Mr Cooper: I was asked if I was
interested in helping the Agency, and I was. I took up the post
on an interim basis and the plan is to advertise the post in due
course.
Q805 Chairman: When you decided to
give the help that you have just indicated, did you have any conversations
with either Johnston McNeill or Mark Addison about the history
of the Agency and how it had got to the position that you inherited?
Mr Cooper: I did not have any
conversation with Johnston McNeill but I did speak to the Permanent
Secretary and also to Mark Addison, as well as others.
Q806 Chairman: The others, I presume,
were the senior managers, were they, of the Agency, that you found
yourself in charge of?
Mr Cooper: Some were, and some
were within the parent department Defra.
Q807 Chairman: Inevitably, I would
imagine one of the first questions you would have asked is "How
did we get into this mess?" What did you get as an answer
to that question?
Mr Cooper: To some extent, I did
ask that question, but also I took it upon myself to take a view
that I should be looking forward. Therefore, given that I was
taking up this role, whatever was there that was the starting-point
for me, which obviously has benefits and disbenefits in the approach.
My starting-point was that I would accept what was there and try
to move forward.
Q808 Chairman: I suppose history
always supplies an answer, not just to the question of how we
got there but also it helps to outline some of the challenges
that you face. If you are going to move through to the programme
which we will discuss in more detail in a moment or two, it does
help sometimes to know where you have come from. What was your
surmise, taking over this organisation, as to the key reasons
why it had run into such difficulties?
Mr Cooper: In summary terms, then
the phrase which comes to my mind is it was too much in too short
a timescale, obviously then a whole host of issues rolling forward
from there. That I think is the way I would sum up where the Agency
had got to.
Q809 Chairman: Mr Vry and Mr Hewett,
you were previously involved in the Agency under Johnston McNeill's
watch; what would be your description as to how the Agency got
into the mess that it did? What do you say to that, Mr Vry?
Mr Vry: In terms of the situation
in which the Agency found itself.
Q810 Chairman: Can you just confirm
to us what you did before what you are doing at the moment? That
might also be of help.
Mr Vry: I joined the Agency in
November 2001 as Change Programme Director. The remit of the role
there was to ensure that the senior management team worked together
to ensure the delivery of the Change Programme as it was then.
Obviously, as the Committee will be aware, the nature of the challenge
facing the organisation changed as a result of the implementation
of CAP reform. I continued in that role and was due to leave when
the Change Programme completed, so I was looking to leave towards
the end of 2005. I was asked by Johnston McNeill, then Chief Executive,
to stay on to help the organisation towards commencing payments
in February, which I did, then obviously, with the issues which
occurred in March, I was asked whether I would stay on as Interim
Chief Operating Officer from 15 March.
Q811 Chairman: Mr Cooper has just
told us that it was too much too far and you were involved in
the Change Programme. What made you believe that the Change Programme
would deliver a functioning, efficient Rural Payments Agency which
would also meet the changed operating environment in which Sir
Brian Bender was steering the whole of the Department, in terms
of the overall Change Programme and the commitment by Defra to
certain reductions in its budget? What made you have comfort that
it would all work?
Mr Vry: I do not think it is fair
to say that there was ever `comfort'. I think, as you will have
seen from the various reports, the Change Programme was always
identified, from its very early stages, as a high risk programme,
and the OGC risk assessments that we undertook throughout the
Change Programme showed it to be high risk and it continued to
be high risk throughout its life. I would not use the term `comfort';
obviously, it was always going to be a very challenging programme
for the Agency.
Q812 Chairman: You must have believed
that it could have been delivered otherwise you would not have
carried on, however risky it was. It was not, in your judgment,
so risky, it would appear, that any of the senior management said
to either the Chief Executive or ministers "We can't deliver;
it's not going to work. We're not going to be able to make these
payments on time; we can't meet our Change Programme objectives."
You must have thought, ultimately, however risky it was, it was
going to work?
Mr Vry: First of all, the Change
Programme objectives, towards the latter part of the Change Programme,
clearly were focused very much on delivery of SPS and, as we progressed
through the life cycle of developing the Change Programme, the
risk profile, as I mentioned, did change and it became increasingly
high risk.
Q813 Chairman: We go from a risky
to a higher risk programme. What do you think the elements were
which caused that risk profile to change?
Mr Vry: I think the report which
was undertaken by the National Audit Office was quite useful in
summarising the key points. They mentioned a number of factors.
They mentioned that changes during the development of the IT systems
to incorporate EU regulations and other policy changes reduced
the time available for testing before the system went live, so
there are issues around that which increased risks. The Agency
underestimated the amount of work in mapping farmers' land, and
that is absolutely true, there was an underestimate, some people
think, of the amount of work which would be involved in mapping;
that, in the absence of adequate management information, the Agency
underestimated the amount of work involved in processing each
claim.
Q814 Chairman: It is very good of
you to read out the NAO Report, but we have read that for ourselves.
What I am actually more interested in is why, Mr Vry, as a part
of the former senior management team of the Agency, you prescribed—and
I am sorry you happened to be, if you like, you and Mr Hewett,
the people who remain, so inevitably you have to take the burden
of some of these questions—what I am intrigued by is, as
people with expertise, otherwise you would not have been appointed
to these tasks, you presided over policies which amounted to the
difficulties that you have enunciated, seemingly without perceiving
that these problems were going to be the show-stoppers they turned
out to be. What went wrong inside the senior management team?
When you met to have your various and many meetings, some of which
we have seen, did not any bells ring with anybody that you were
heading for the rocks?
Mr Vry: First of all, when we
encountered the changes that we needed to make to the system,
as a result of policy changes, in December 2004, we went through
a fundamental review of the risks of delivering that programme.
We took a view that it was still deliverable at that point in
time, but it had increased the risks of delivery. In discussion
with Defra, we announced that the earliest we could start making
payments would be February 2006, and we worked throughout 2005
and early 2006 to ensure that we did hit that milestone, and indeed
we did commence making payments in February, as we had promised
some 12 months before. The issue was that where we had not understood
the complexity was that it would take far longer to get the payments
out; once we started making payments they did not flow through
with the speed or at the level that we had anticipated, and that
is where then the major problems arose.
Q815 Chairman: We are going to come
back to follow that through, because I think we would all be very
interested to know why there was such a difference between the
fit, between what you thought you could do and what subsequently
transpired. We will also explore, in some detail, the candour
of Mr Cooper's explanation that he has still got an organisation
which has some problems which are inherited from the scenario
you have put to them. Just to start the process of looking forward,
Mr Cooper, can I turn to you and ask you to bring us up to date
with where we are with the 2005 payments and how many of them
are currently not yet settled, and perhaps to give us a flavour
as to what the barriers are to progress on that?
Mr Cooper: The 2005 position,
we have, I think it is, 41 Priority 1 cases, high value cases,
which have not yet been paid; in fact, they have not received
any payment. The majority of those cases are cases that are in
probate, the minority are held up for some legal dispute issue;
so we have explored as many ways as probably we can to find ways
of making payments, including whether we can make payments to
executors, and the like.
Q816 David Taylor: Sorry to interrupt.
Is this `high value' more than €1,000; is that the definition?
Mr Cooper: It is, yes.
Q817 David Taylor: It is not that
high value?
Mr Cooper: It is how we class
the Priority 1 case. In previous years a number of high priority
or probate cases have existed and have run through and those cases
will continue to prevent payment for quite some time probably,
although as those cases are resolved we will make payments. The
other area is those that are under €1,000, so under £682,
and of those we have about 1,700 still to pay, and we will continue
to pay those and expect to pay them over the next few weeks. In
addition to that, there are some top-up payments which are still
due, that is in the order of about 2,500, and we are continuing
to work through those. We have some outstanding correspondence
which we are still dealing with for 2005. We have made significant
inroads into that. In August it was something in the order of
28,000 outstanding items and is now down to 12,000, so we have
made significant progress there.
Q818 Chairman: Just to be clear on
that, you say that you had 28,000 items of outstanding correspondence;
what kinds of things did those deal with, in general terms?
Mr Cooper: What we have found
is, it is a multitude, because there were some people who wrote
and said "Where's my payment; when am I going to get paid?"
There were some who were responding to questions that we had asked
them, for points of clarification, and then there follow-ups to
that, saying, "I sent you this information but I haven't
heard back." We got into a sort of unmanageable vicious circle
round the volumes and we have had to make a concerted effort to
sift through those and identify them. There were also some representations
made on the basis that perhaps some of the payments were incorrect
and we have identified those and given them a higher priority.
Q819 Chairman: One of the consequences
of the organisation that you inherited was the question of disallowance
from the European Union and, using your best endeavours, you have
put a contingency of some £131m into the Defra accounts.
I think it would be interesting to have a bit more detail as to
how that £131m has been calculated, and when the process
will begin to determine if it turns into a real £131m you
have got to find, or whether it is something which can be expunged
from the balance sheet. I gather also that you have made a total
provision of £150 million for EAGGF financial corrections
for the year 2005-06. I think the £131m is separate from
that. Perhaps, again, just so that we understand the overall contingency
liability, because that says it looks like your Agency has got
£281m of contingent liability written into its balance-sheet,
it is quite a lot of money, so where has that money come from?
Mr Cooper: The estimate, which
I think, in round terms, is £150m in total, there is £131m
which is placed as a contingency against disallowance because
of the Single Payment Scheme and the balance is against the other
schemes that are administered, because of potential disallowances.
The £131m is an estimate and, as you are suggesting, can
be only an estimate until we have correspondence with the European
Commission. It is driven partly because of the way in which partial
payments were made, partly because of a level of incorrectness
over payments identified during audits. The European auditors
are in the process of auditing the accounts at the moment and
once they have completed their work they will report back to the
Commission. The first step in the process of agreeing the figure
is that the Commission will write and advise I am not sure whether
it is the Department or the Rural Payments Agency of the figure
which they believe is appropriate. When we have that figure then
we will start a process of discussion with the Commission to understand
why they have reached the figure that they have reached. Our estimate
is one that we have estimated taking some advice from lawyers
around the interpretation of the Scheme, and clearly we would
argue that we have not put at risk the fund at any stage during
the decision-making process to make payments.
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