Examination of Witnesses (Questions 600-619)
BERR, OGC
22 JANUARY 2008
Q600 Mr Bailey: So you do not think
there is a case for having a sort of chief engineering officer
like the Chief Scientific Officer?
Mr Timms: That, I think, is a
slightly different proposition. I have not seen a compelling case
for such an appointment but if there were one made to me I would
certainly have a look at it.
Q601 Mr Bailey: Can we move on to
framework contracts which are generally accepted as being the
best way to go forward? There is considerable evidence that there
are improvements that could be made in the way the public sector
manages its framework contracts. Do you monitor and advise on
the performance of framework contracts?
Mr Timms: Can I ask Mark to comment
on this?
Mr Pedlingham: We have moved to
a number of industry standard contracts as being the best way
of taking forward our engagement supply side, and that was done
a few years ago as a result of an analysis of the then current
government contracts and a view that they were perfectly sound
industry standard contracts that would be of value to us. The
major way in which we understand whether projects are being successful
or not in delivering the outcomes is by measuring the project
performance. We have been measuring project performance for a
while. Back in 1998-99, when the assessment was first made by,
I think, the NAO study on project performance, we had a success
rate of something like 30% on projects. The most recent data we
have as a result of measuring performance shows 60% successful
delivery of projects. We are seeing signs that all of the guidance—and
there is yards and yards of it as you are aware—that OGC
has provided is now beginning to bear fruit.
Q602 Mr Bailey: What is the take-up
on the Office of Government Commerce Gateway Process?
Mr Pedlingham: As you say in your
evidence, the Gateway Process is well respected and has been running
for some considerable time. We are always looking to refresh,
and, of course, some of the major departments have been authorised
to use Gateway themselves for medium risk projects, so we are
actually seeing the utilisation of Gateway spreading. Specifically
in the construction area, it has been used on 368 occasions on
182 programmes, so I think we are seeing quite a large use of
Gateway in construction and the value that is having is similar
to the value Gateway has in all major projects in which it is
applied.
Q603 Mr Bailey: Do you think there
is much potential for greater take-up?
Mr Pedlingham: I think the fact
that we have given some of the major departments the ability to
effectively own and run the Gateway process for all their medium
risk projects means you will see very much more use of Gateway
on those projects than OGC was capable of achieving whilst it
held effectively the responsibility for all Gateway reviews.
Q604 Chairman: Mr Pedlingham, can
I ask a question I should know the answer to? Which minister do
you report to?
Mr Pedlingham: The Exchequer Secretary
to the Treasury.
Q605 Chairman: Which minister in
particular though would you regard as your minister?
Mr Pedlingham: Angela Eagle.
Q606 Chairman: That is just for my
information. I was exploring in my own mind the case for moving
you to BERR, that was all, because you are very important for
the sector. Your work is hugely important and a lot of our witnesses
have talked about you. The Construction Clients' Group think you
do not have enough resources, for example, to do the job you need
to do, which is one of the reasons perhaps why Gateway is not
making the progress it could do; it is not fulfilling its potential.
You say, in your very welcome contribution to the memorandum that
the department gave, that you are reforming yourselves to have
a "smaller, more focused... organisation". I recognise
those managerial buzzwords because you have taken a hit from the
Treasury so they justify them in public. How much smaller are
you becoming and, if people think you are under-resourced already
for the job you need to do to drive through good procurement generally
but also specifically in construction, how will this help?
Mr Pedlingham: First of all, to
clarify, the Public Sector Clients Construction Forum, which is
the body we use to integrate much of the work we do on the client
side, is only one part of OGC's contribution to the construction
marketplace, and, of course, Gateway operates quite independently
of that forum. Whilst you are quite right in saying that the size
and scale of the organisation within my ambit that looks at the
construction sector and should provide support to the PSCCF has
reduced as a result of Transforming Government Procurement,
it is very much the size and scale it needs to be to do the task
it is being set. PSCCF had some very detailed discussions about
18 months ago about the future direction it should be taking and
its conclusion was that there was now a sufficient body of guidance
and sufficient understanding of what was mandated and what was
there simply to be encouraged to be used for the emphasis to move
away from the creation of such guidance and towards embedding
that guidance in use within the departments. Given OGC's position,
it can do a certain amount towards that but it is the departments
that need to put the effort into the embedding processes rather
than OGC.
Q607 Chairman: I cannot recall our
earlier conclusions in our procurement report, but basically we
felt you should be more powerful and be wielding the stick a bit
more because, with the best will in the world, you are the experts
and government departments are not always. You have been given
a more powerful stick but you have not got the people to wave
it, have you?
Mr Pedlingham: Any power that
is exercised must recognise the primacy of ministerial responsibility.
Q608 Chairman: You have a responsible
minister, so Angela Eagle can tell you what you should do.
Mr Pedlingham: What I mean is
that it is the responsibility of ministers to deliver the outputs
that their departments are responsible for delivering. That is
why a lot of what OGC provides is guidance and is required. Where
it is mandated it is mandated by government agreement that it
should be mandated and the flow effectively of that mandation
is through the departments' ministers.
Q609 Chairman: There is no doubt
there are some very effective government departments out there
procuring very well. The model that is being held up for this
committee at present is the Highways Agency, for example, as a
good example, but elsewhere procurement just is not up to it and
I think you need to make your presence much more powerfully felt,
for example, with local authorities. The infrequent purchaser
is often a much more difficult candidate, of course, and often
their purchases are infrequent; sometimes they are frequent, as
in the case of schools, for example, but do you think local authorities
are doing the job and do you think OGC could do more with local
authorities to help them do their job of procurement more effectively?
Mr Pedlingham: I think I will
go back to the point that OGC has got very much more in the way
of support and assistance to the construction industry than just
my part of the organisation, Gateway being a clear example. This
question of government's capability in procurement overall is
recognised in the Transforming Government Procurement document
by the work that I am doing elsewhere on trying to improve the
Government Procurement Service and the reforms we are making there.
Likewise, there are the procurement capability reviews that OGC
has initiated. We have been through the first five of those and
the reports of the first three procurement capability reviews
were published in early December. These are very much about assessing
departments' capabilities for the delivery of their procurement
challenges and understanding what help we can give them to improve.
Q610 Chairman: It is just that your
organisation generally has a hugely important role for construction.
What percentage of procurement is public as broadly defined—30%,
40%?
Mr Timms: About a third.
Q611 Chairman: So it is a huge impact
on the sector, both in terms of spreading good practice but also
in terms of helping the sector plan its resources. We have talked
about the Public Sector Construction Clients' Forum. The Minister
anticipated that we would want to discuss that in his answer,
quite rightly. Do we think it is making a real difference? Can
we actually say yes or is it just a committee that sits around
coming up with very interesting reports and econometric modelling
or can we say yes, it has changed things for the better?
Mr Pedlingham: My view of where
the PSCCF has got to is very much that it has shown the leadership
that it was required to show. It is very much around the strategic
engagement of all of the public sector's clients and, of course,
we bring to that also Constructing Excellence, the Strategic Forum
for Construction, CABE, et cetera, and that allows us to design
programmes that take the construction industry forward. There
is no question in my mind about that. As you say, quite rightly,
we have created the demand cluster modelling process, which really
has three aims, one of which is to allow departments to model
their future plans so that they can understand what impact those
plans might have and what constraints there might be in pursuing
those plans, but it also helps us to understand the skills agenda,
as the Minister has just been discussing, and it allows us effectively
to understand the impact that government as a client is having
on the supply side, but that is only one element of what it has
been doing. PSCCF has also been large in understanding the practical
impact of whole life value and what that might mean and providing
guidance as to the common core metrics that should be used in
forward assessments of investment in a whole life value sense.
We have also done work on fair payments, which I am sure you are
aware of, and it is no mean feat to get agreement across both
supply side and client side on the fair payments regime, and I
think that has been very successful. We are now putting in place
some work to baseline where we are in respect of utilisation of
the fair payments guidance and we will be measuring that over
the coming years to ensure that we are improving in that area.
There is also reviewing things like the current procurement routes
that we use to understand whether there are better procurement
routes than those we are currently engaged in. There is a broad-ranging
set of activities and we are very much focused on improving client
side capability.
Mr Timms: I attended a meeting
of the forum before Christmas which I certainly found very worthwhile,
and I think this must be the right way forward. I agree with you
about the Highways Agency being an exemplar at the moment. I think
Defence Estates is another. You have mentioned local authorities
and there are some very good examples. Birmingham City Council
I know has been mentioned in earlier evidence sessions. The right
way forward must be to spread the understanding of that best practice
across the whole of the public sector. I do not think there are
ways of absolutely forcing every local authority to behave in
a way that is as good as the best, but I think we can encourage
people and make real progress as we do that, and I think the forum
has been making real progress.
Q612 Chairman: Just to wrap up my
questions about the OGC specifically, you can put your hand on
your heart and say the budget cuts are not going to make you less
effective and the Public Sector Construction Clients' Forum is
achieving practical change on the ground, as it were, not just
meeting in committee and deciding what it ought to do in theory?
Mr Pedlingham: It certainly is
not a talking shop; that is something we have been very clear
and careful to ensure. Secondly, as I say, I think the work of
the PSCCF is about ensuring embedding of the good practice guidance,
et cetera, that we have put in place. That is best achieved, as
I say, through a number of other mechanisms, such as Gateways,
PCRs (Procurement Capability Reviews), MPRG (Major Projects Review
Group), et cetera.
Q613 Chairman: Perhaps it is unfair
to put an official under pressure on this point, so perhaps I
ought to see what the minister says. You reject the evidence of
the Construction Clients' Group that OGC is under-resourced?
Mr Timms: I think OGC has got
the resources that it needs to do what is undoubtedly a very important
job.
Q614 Anne Moffat: My question is
about integrated and collaborated working. Your memorandum states
that BERR's relationship with the construction industry is set
"firmly" within the Egan agenda, which advocated integrated
and collaborative working. Yet the Construction Industry Council
and the National Audit Office both told us that the impetus behind
Egan had been lost. If that is the case what can you do now to
promote integrated and collaborative working?
Mr Timms: I do not agree that
the impetus has been lost. I think the direction set for us, starting
over 10 years ago now, by Sir John Egan when he was appointed
by John Prescott, has been maintained and that continues to be
the agenda for our work on construction. There certainly are some
areas where progress has not been as great as we would have wanted,
and you mentioned integration. I talked to Mike Davies of the
Strategic Forum on Construction about this recently. On integration
specifically it is clear we have made progress five years on from
the Egan progress report which was carried out in 2002, and the
details of the progress will be set out in a report in June, but
I accept it is now clear that the target for integration, which
was that by last year 50% of projects by value should be constructed
by integrated teams, has not been met. However, I do not agree
that the momentum behind Egan has been lost and it is certainly
my firm intention to ensure that all of us, industry and government,
are clearly focused on making further progress in the direction
that Egan set out.
Q615 Anne Moffat: What work are you
doing with the financial services industry to develop financial
products to aid integrated working, such as project insurance
and project bank accounts?
Mr Timms: There has been some
interesting work on both of those and I recognise the importance
of both of them. I do not think there is a kind of silver bullet
in either of those developments but I recognise the importance
of the contribution they can both make. On project bank accounts,
and the NAO have identified these as an example of things being
done well, they looked at an example of their use on a Defence
Estates project at Andover North, and we are therefore starting
to see that happen. I notice that we have a couple of banks now
offering project bank accounts products and that is welcome progress.
On project insurance we have been looking at this as well. The
push here has predominantly come from the SEC Group to get the
public sector to agree to pilot single point project insurance.
There is now a Health Service project under Procure 21, the NHS
procurement programme set up by NHS Estates, to be the first trial
for project insurance. That is due to start shortly, so on that
front as well we are now making some progress.
Q616 Anne Moffat: Finally from me
on retentions, the main representatives of all the sub-contractors
told us there has been virtually no progress on improving the
situation with retentions. What are we doing about that?
Mr Timms: A number of things have
happened, but perhaps the most important has been the launch last
summer of the Fair Payment Charter that Mark touched on as one
of the things the OGC has been working on. We have done quite
a lot of work around this charter. I spoke at the launch event
last summer. The then Financial Secretary wrote at the end of
May last year to other ministers to commend the Fair Payment Guide
and the Charter; we published it on the website. We have got OGC
working with other industry umbrella bodies to help embed the
charter in industry practice and OGC has appointed a consultant
to carry out a baselining survey and put in place payment improvement
measurement methodology so that we can look at progress between
the beginning of this year, 1 January 2008, and 2010. The OGC
is also using regional road shows to promote the principles. That,
I think, has been quite a significant initiative. It is about
encouraging people to do the right thing, but I think that is
the most effective initiative we can take in this area, and certainly
there have been lots of copies of the Fair Payment Guide and Charter
that have now been disseminated.
Q617 Anne Moffat: Do you accept that,
while it is difficult to police this sort of practice, the contractors
have been provided with interest-free loans subsidised by the
taxpayer?
Mr Timms: I think there are arguments
on both sides of the debate about retentions. There certainly
are disadvantages from them but on the other hand they are a simple,
readily available way for clients to get some assurance on defects
and remediation being provided if they are needed. I do not think
it is an entirely cut and dry argument about retentions being
a bad thing.
Q618 Chairman: You are satisfied,
Minister, that government departments and public bodies are not
guilty of failing to monitor the behaviour of their contractors
to ensure they are following best practice on retentions, and
there may be a case for it and I understand what you are saying,
but if they are just being rather cavalier and not paying their
sub-contractors then opinion around this room is that it is helping
their cash flow? You are happy about the overall level?
Mr Timms: What I am saying is
that we have worked hard on promoting the fair payment guidelines.
That is one of the roles that the Public Sector Construction Clients'
Forum has taken up. When I have spoken publicly about this, and
I have done this a couple of times now, I have said to people
that if they do come across examples of agencies in the public
sector not complying with best practice I would like to know about
it and I will be very happy to take action in response.
Mr Pedlingham: As I understand
it, that is one of the reasons why we are intent on ensuring that
this Fair Payment Charter actually is utilised. The reason for
baselining where we are today and then monitoring is very much
about that. One of OGC's roles is to hold up a mirror and demonstrate
to departments where their performance is meeting our expected
levels of capability and where it is not. That is a very important
role, so having a measurement process in place and committing
to measuring payment against this Fair Payment Charter is the
way in which we are going to try and ensure that it gets adopted.
Mr Timms: We recognise that we
are not there everywhere yet, but we are working on it.
Q619 Chairman: I think the trouble
with the ODA is that they have a policy of no retentions. They
want to have a proper management of the supply chain, make sure
everything is done properly, well managed, with proper collaborative
working, and then you do not need retentions. With a well managed
project you should be able to avoid them. That is what the ODA's
ambition is, I think.
Mr Timms: I welcome that and there
are some very good projects around where that approach has successfully
been applied.
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