2 What went wrong
9. European Union Regulations offered some discretion
to Member States over how to implement the single payment scheme.
In August 2004, Ministers decided to introduce the scheme in England
using the most complex, "dynamic hybrid", basis of payment,
following advice from officials that the scheme was deliverable
for 2005 claims. Under a dynamic hybrid rate, payments to claimants
are based partly on the historic rate and partly on a flat rate
per hectare. Over time, the historic rate proportion declines
until payments are wholly based on a flat rate. For farmers in
England who had previously received subsidies, 90% of the payment
in the first year was calculated by reference to amounts received
in the past and 10% on a flat rate per hectare. Wales and Scotland
adopted the "static historic" rate of payment[10]
and Northern Ireland adopted the "static hybrid"
[11] rate.[12]
10. Germany was the only other European country to
adopt the dynamic hybrid rate in 2005. In Germany the Federal
Ministry of Food, Agriculture and Consumer Protection used its
contingency scheme to make advance payments in December 2005,
and final payments in April to June 2006. The German government
also specified a minimum claim size of 100 Euros. Figure 2 below
shows that notifying farmers in England of a minimum claim of
100 Euros would have reduced the number of claims by 14,000 or
12%, thus mitigating the increase in the number of claimants to
116,000 in 2005 compared with 70,000 in 2004 under previous schemes.[13]
Figure 2: A large proportion of claims in 2005 were for a relatively
small amount of money
Source: National Audit Office analysis of Rural Payments Agency Data
11. Achieving the challenging timetable agreed with
Ministers was made difficult because the Department and the Agency
underestimated the amount of work involved. The timetable to develop
the new computer system was based on assumptions on the likely
policy content of the final scheme. By December 2004, however,
the Agency had identified 23 changes required to be made to the
system largely to incorporate changes to European Union regulations
and legal clarification of those regulations, Ministerial decisions
and other identified changes. Implementing the changes deferred
the forecast date for making payments from December 2005 to February
2006, but pressure on the timetable also led to the Agency accepting
IT components before they had been fully tested. Work on developing
a digital map of farmers' lands (as required by European Regulations)
commenced in 2002. The Agency did not pilot test adequately the
process of registering farmers, accurately mapping their land
and confirming eligibility. It had expected to record 1.7 million
parcels of land but had to deal with 2.1 million parcels. Once
the Agency started processing the 2005 single payment scheme a
backlog of farmers' map registration forms built up, reaching
31,000 forms by September 2005.[14]
12. Implementation was further complicated due to
the decision to incorporate the work into an existing business
change programme. The computer system became a key feature of
the Agency's reorganisation plans to reduce staff numbers. Processing
of claims was switched to a 'by task' basis instead of using a
single member of staff or small team to process a whole claim
from start to finish. Overcoming the difficulties with processing
claims depended on the Agency having sufficient skilled staff
to resolve outstanding queries. The Agency had, however, let 1,000
experienced staff leave on redundancy terms during 2005-06 as
part of re-organisation plans to reduce headcount by 1,800 posts.
Under pressure to meet payment deadlines, the Agency spent £14.3
million recruiting temporary staff. It also cancelled the second
wave of planned redundancies. The Agency was unable to say whether
it had recruited any of its former employees to work as temporary
staff.[15]
13. The Office of Government Commerce Gateway Reviews
had raised specific concerns about the progress of the project
and the June 2005 review in particular had questioned whether
the project would succeed. The Department considered that the
'red' reviews did not necessitate that the project should be stopped,
but instead that they should take action to address the risks
identified. The National Audit Office had recommended that in
future for key mission critical projects where the Office of Government
Commerce had a direct intervention role, the Senior Responsible
Owner should specify, in conjunction with departmental officials,
the circumstances in which the results of a Gateway Review should
be used to advise senior officials and Ministers that a project
should be stopped or fundamentally reviewed. The Accounting Officer
suggested that the Gateway process could usefully assist in judging
the underlying capability of an organisation to deliver the necessary
change.[16]
14. Despite the high risks identified from the outset
in implementing the project, the Department lacked genuine workable
contingency arrangements and hence in response to warning signals
the Department and Agency continued to press ahead. The Department
explained that the contingency computer systems available at different
stages of the project would have relied on the same data such
as the maps and hence would have encountered similar problems.
However, 90% of the 2005 payment was based on amounts received
by farmers in the past, and the number of claims at just over
116,000 was relatively small so that contingency arrangements
to maintain farmers' cash flow should have been practicable.[17]
15. According to the Agency's financial data, the
outturn cost of the project to implement the single payment scheme
at March 2006 was £122 million, some £46.5 million more
than anticipated with further increases likely to take account
of key elements of the system deferred such as the software to
extract management information. The provision of £131 million
for potential disallowance by the European Commission of payments
for the 2005 scheme year exceeded the project cost, illustrating
the poor value for money achieved. In February 2007 Parliament
approved a supplementary estimate of £305 million to meet
the potential cost of additional disallowance on the 2005 and
2006 single payment schemes and residual liabilities on the previous
schemes administered by the Rural Payments Agency. The business
change programme (which includes the single payment scheme) had
cost £258 million by March 2006 and was expected to achieve
efficiency savings of only £7.5 million by March 2009. The
departmental Accounting Officer agreed that expected benefits
from the project and programmes had not been achieved and more
costs were likely before savings arose. Nevertheless, the Agency
now had a Rural Land Register, digitised maps and good customer
data on which it could build for the future.[18]
16. Contrary to advice from the Office of Government
Commerce, the Department and the Agency put in place two Senior
Responsible Owners to oversee the project, one, in the Department,
responsible for policy and one, in the Agency, responsible for
implementation. Both Senior Responsible Owners and the then permanent
secretary of the department, Sir Brian Bender, were directly involved
in the programme. The Director General for Sustainable Farming,
Food and Fisheries in the Department, Mr Andy Lebrecht, was the
Senior Responsible Owner with oversight of the policy framework
relating to Common Agricultural Policy Reform. The former Chief
Executive for the Rural Payments Agency, Mr Johnston McNeill,
was the Senior Responsible Owner for the implementation of the
single payment scheme and the Accounting Officer for the Rural
Payments Agency. The division between Senior Responsible Owners
meant, however, that he had to implement policy decisions to which
he had not always been party.[19]
17. There were two key oversight boards. The CAP
Reform Implementation Board (CAPRI), responsible for programme
management, was alternately chaired by the two Senior Responsible
Owners, Mr Johnston McNeill and Mr Andy Lebrecht. The Executive
Review Group, chaired by the Department's Permanent Secretary,
considered papers previously reviewed by CAPRI, and its terms
of reference were to provide a critical challenge function. Responsibilities
between the two boards became blurred as the project proceeded
and both took greater control of implementation, rather than one
acting as a challenge to the other. As the crisis developed, documents
were often prepared at the last minute and reports to senior officials
were long and complex and did not routinely draw out key messages
or corrective actions required, making it difficult to challenge
the basis of some of the data submitted. The pressure to have
systems ready in time led the Agency to defer development of the
computer programme required to extract management information.
Only between 20 February and 10 March 2006 did it become clear
to the Agency that it would not be able to meet the target of
paying claims by the end of March. In the absence of reliable
management data, the project team and officials were unable to
draw adequately informed conclusions and were not sufficiently
alive to the likelihood of failure and its consequences.[20]
18. The Chief Executive of the Rural Payments Agency,
Mr Johnston McNeill, was removed from post in mid-March 2006 following
the failure to deliver the single payment scheme and having lost
the confidence of Ministers and the Department's Accounting Officer.
Many of the other senior managers in the Agency were transferred
to posts elsewhere in the Department's sponsored bodies considered
to be more compatible with their skills. The Department confirmed
that no member of staff had received an official warning or been
subject to any other disciplinary action over the project's failure.[21]
19. The former Chief Executive remained on leave
of absence on full pay of £114,000 a year until 1 December
2006. The delay in resolving the former Chief Executive's employment
status was due to his ill health and the need to establish his
precise contractual and, therefore, pension and lump-sum entitlements.
In 2004-05 he had received a performance bonus of some £21,000
(equivalent to some 18.5% of salary). The departmental Accounting
Officer explained that the Chief Executive's performance targets
had been linked to the Agency's targets and that they had not
specifically included delivery of the single payment scheme. The
Department confirmed that it did not make any severance payment
to the former Chief Executive when his employment was terminated.
He had received six months pay in lieu of notice totalling some
£60,000. In addition, the Civil Service Appeal Board recommended
that the Department should award Mr McNeill £60,800 compensation
for failing to adhere to formal processes and providing him an
opportunity for appeal to an independent adjudicator.[22]
20. The Interim Acting Chief Executive of the Agency
had simplified the 2006 scheme application form to assist in processing
claims and had also improved customer support systems. Inherent
design problems within the information technology systems meant
that the Agency was still not able to deal adequately with specific
queries about individual claims or provide an enquiry service
for callers at its local offices. The Agency commissioned consultants
to review the IT system and, in the longer term, it aimed to improve
its customer service by resolving potential queries earlier in
the process. The Agency was developing a recovery plan which should
be fully implemented by April 2008.[23]
21. The Committee's hearing on 'Delivering Successful
IT-enabled Business Change' highlighted the importance of senior
level engagement and for Departments to act as an intelligent
client by clearly specifying the business processes to be changed
and the outcomes they want to achieve. In particular, the Treasury's
New Major Projects Review Group aims to ensure that complex projects,
such as the implementation of the single payment scheme, are subject
to high levels of scrutiny. The departmental Accounting Officer
recognised the importance of developing appropriate business processes,
and of making sure organisations had the right leadership capacity
and soft skills capability.[24]
10 Based on average direct payment receipts of each
farmer between 2000 and 2002 under previous subsidy schemes. Back
11
Payments are based partly on the average direct payment receipts
of each farmer between 2000 and 2002, and partly on a flat rate
per hectare of land. Back
12
C&AG's Report, paras 17, 1.7; Appendix 1; Qq 2, 3, 18-20,
188-189, 200 Back
13
C&AG's Report, paras 1.3, 2.6; Figure 1; Appendix 1; Qq 2,
3, 18-20, 36, 50, 114, 144-150 Back
14
C&AG's Report, paras 2.2-2.3, 2.5-2.8; Qq 1, 2, 3, 10, 11,
12, 28, 109-112, 192, 200, 256, 275 Back
15
C&AG's Report, para 2.9-2.10, 4.2; Qq 21-22, 44, 59, 65,148,
249-252 Back
16
Qq 10, 28, 42, 70-74, 157-164, 296-297 Back
17
C&AG's Report, paras 5.1-5.5; Qq 2, 10, 206 Back
18
C&AG's Report paras 3, 15; Qq 9, 47-48, 106; Spring Supplementary
Estimate, HC 293 2006-07 Back
19
Qq 204, 244, 246, 304-306 Back
20
C&AG's Report, paras 25, 26, 5.7, 5.9-5.11; Qq 1, 10, 16,
56, 61, 203, 260-263, 267, 286, 289, 297 Back
21
Qq 31-32, 58, 81-86, 115-116, 210, 268 Back
22
Qq 15, 28, 33-35, 71,165-166, 167-187, 307, 315 Back
23
C&AG's Report, para 4; Qq 6, 17, 25, 88, 98 Back
24
C&AG's Report, paras 27-28; Qq 8, 9; Committee of Public Accounts,
Twenty-seventh Report, Session 2006-07, Delivering successful
IT-enabled business change, HC 113 Back
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