House of Commons - Foreign Affairs

Select Committee on Foreign Affairs First Report

4 Operational efficiency

77. As part of the CSR 2004, the FCO agreed to make more than 2.5% year on year efficiency savings. This amounts to a total of £120 million by the end of 2007/08, of which £33 million will be delivered by the British Council and BBC World Service. The FCO's Annual Report reports that it is "on track" to meet its total target by 2007/08.[120] The Q4 efficiency figures for 2006/07 show that the FCO had made total efficiency savings of £87.8 million by the end of the financial year.[121] The FCO is making efficiencies under the following initiatives and individual projects:

Estates projects - Lyons [relocating from London and the South East of England to other parts of the UK], asset recycling and energy efficiencies

Future Firecrest and Prism [ICT projects]

Reductions in low priority activity - BBC Monitoring, alternative representation, and restructuring the Department of Strategy and Information

UK/Ancillary pay-bill reduction - UK-based staff pay-bill reduction, ancillary pay-bill reduction, overtime reductions and local staff pay bill reductions

Increase efficiency of procurement function - strategic sourcing and demand management, procurement at post and facilities management

Restructuring corporate services - strategy unit savings, Finance Directorate savings, HR Change Programme, extra wider market turnover from FCOS [FCO Services], reductions in FCO back office, better project management, reductions in contractor costs and language training.[122]

We consider the impact of some of these projects later in this Report, but for now we will look at three particular aspects of the FCO's efficiency programme —ICT savings, workforce changes, and Shared Services — as well as the overall monitoring of the programme.

ICT savings

78. The ICT efficiency savings forecast for 2006-07 in the 2005-06 Annual Report were £16.4 million, but up to the third quarter of 2006-07 the outturn of ICT efficiencies stood at only £1.1 million. The 2006-07 Annual Report stated that this was because of a delay in the rollout of the Future Firecrest programme, which is replacing the FCO's present desktop ICT system, known as Firecrest. As the rollout would not now take place until early 2008, related efficiencies would be realised outside the SR04 programme.[123] The report added that the FCO had introduced six new projects (included in those listed above) which "more than" compensated for the delayed savings.[124]

79. The Future Firecrest programme was delayed because new Cabinet Office security requirements at the time the FCO signed the Future Firecrest contract with Hewlett Packard meant a significant redesign.[125] We questioned Sir Peter Ricketts about whether these requirements could have been anticipated. He replied:

It is unfortunate that we were just on the point of investing in Future Firecrest when the security authorities changed the rules on IT systems that could be connected to the internet and the security arrangements needed for them. When they come across evidence, the security authorities have a duty to ensure that the rules take account of it and none of us wants to be responsible for lapses in IT security.[126]

80. We asked Dickie Stagg who would cover the additional costs of the redesign. He told us that the FCO was very unlikely to get help from the rest of Government, but that it was negotiating with its IT partner in the programme, Hewlett-Packard, to try to minimise the cost. He added that the FCO hoped to conclude the contract variation negotiation in July and expressed optimism that the FCO would "be able to make these changes at a cost well below that forecast nine or 12 months ago, through some quite creative input from Hewlett-Packard and our own IT people."[127] The FCO later told us that it had reduced the original estimate for the altered specification from £53 million to £36 million.[128]

81. It is unfortunate that additional security requirements have delayed the efficiency savings expected from the Future Firecrest Programme, but we congratulate the FCO on having managed to remain on target with its efficiencies by introducing new projects. We are also pleased to see that the FCO was able to negotiate a reduction in the additional costs of meeting the new requirements. However, we are concerned about the possibility of further slippage in the Programme. In January 2007 the FCO Board raised the risk level of the Future Firecrest Programme to "red"[129] The FCO's Board minutes for March 2007 stated that the timetable for the Future Firecrest programme remained "very tight",[130] although by July 2007 the Board was told that the risk status was expected to drop to amber by September.[131] We recommend that the FCO keep us informed about progress of the Future Firecrest Programme, including giving us advance warning if there are likely to be further delays to its introduction.

Workforce changes

82. As part of its efficiencies, the FCO has a target of reducing its workforce by 310 staff by 2007/08. This excludes consular and entry clearance services, which are revenue-funded and are in fact expanding their staff numbers to meet growing demand.[132] The FCO's UK-based workforce decreased by 256 staff by the end of December 2006, compared with an interim target of reducing staff numbers by 265 by the end of March 2007.[133]

83. The FCO also has a Lyons relocation target[134] of 450 by the third quarter of December 2010/11. By December 2006 the FCO had relocated 123 positions. The FCO's Annual Report stated that it remained on track to deliver a further 171 relocations and was identifying more posts to relocate.[135] We asked the FCO how it would identify the further 156 posts needed to meet the target. In response, the FCO rather dodged the question, writing:

The FCO took a strategic decision to base additional staff in support of its IT programme at Hanslope Park rather than in London. This, together with the inclusion of 200 relocated British Council posts to Manchester, and the increase in support service staff at Hanslope Park, mean that FCO is on track to meet in full its commitment of relocating 450 posts out of London by 2010-11^.[136]

84. When we queried the inclusion of the 200 relocated British Council posts, Dickie Stagg replied:

It is not a way in which to massage the figure, Chairman. It is merely a reflection of the rules within which the Treasury makes us work, whereby our own non-departmental public bodies are counted in the figures for better or for worse. In some areas, that makes life more difficult for us. In others, it makes it slightly easier for us.[137]

Keith Luck added that the FCO had relocated 150 of its Hewlett-Packard colleagues, but that the Office of Government Commerce had ruled out this part of the FCO's relocation plan on the basis that Hewlett Packard were partners, rather than direct employees, of the FCO.[138]

85. We recommend that the FCO sets out in its response to this Report exactly how it plans to identify the additional posts it needs to relocate to meet its Lyons target.

Shared Services

86. The FCO has a Shared Services Programme to "simplify, standardise and streamline corporate services" within its network of Posts during the CSR07 period. The FCO estimates that the Programme could reduce the FCO's baseline spend on corporate services by a net total of approximately £22 million, but states that this figure is only based on "high level analysis" at present.[139]

87. One of the main projects in this programme is to consolidate financial and procurement processes and human resources for locally engaged staff in a small number of Global Process Centres, beginning in the developing world where the potential savings are greater. The FCO also intends to outsource certain Facilities Management services to private sector contractors.[140]

88. We asked the FCO what the greatest risks it had identified in the Shared Services Programme were and what it was doing to counteract them. It told us that the greatest risks were financial:

There is the possibility that the Programme may not meet its required savings targets within the CSR period. There is also the possibility that HM Treasury may refuse to fund redundancy costs, thus impacting on Programme affordability, and that implementation costs will be greater than expected.

To mitigate these particular risks, the FCO had made a bid for Restructuring Funds from the Treasury for short-term redundancy costs, regularly reviewed its ongoing costs, and had appointed a benefits manager to "help define, record and measure all the benefits for the programme, ensure that these are monitored on a regular basis and the results reported back to the FCO Board."[141]

89. The FCO had also identified operational risks in the Shared Services programme. These included "preparing posts for the Shared Services implementation/cut-over phase, and 'change-fatigue' leading to a loss of morale and key staff leaving, with implications for maintaining business as usual." It told us that its communications team and business change teams were working to mitigate these risks.[142] The FCO had also had an OGC Gateway 0 review of the Programme.[143]

90. The FCO told us that the Centres were a "well-established technique for improving corporate services in both the public and private sectors", but acknowledged that they required "a high degree of technical expertise in order to implement successfully". We asked the FCO what expertise or experience it was intending to draw on when setting up Global Process Centres. It replied:

The Shared Services Programme has brought in contractors and consultants with relevant experience and skills in this field, and has also engaged a senior OGC consultant to help manage the programme as a whole. We have consulted other private and public sector organisations to study their experiences. We are also using skills that exist within the FCO already by employing officers with experience of corporate services work within the Programme, and ensuring that FCO officers acquire skills from external contractors.[144]

91. We conclude that although the Shared Services Programme has great potential for efficiencies, it also carries some financial and operational risks. We welcome the fact that the Programme has had an OGC Gateway 0 review and recommend that the FCO share the review's findings with us. We also recommend that the FCO confirm whether the Treasury has provided funding from its Restructuring Fund to meet short-term redundancy costs related to the Programme.

92. The FCO also has a separate Shared Service Delivery Plan to increase co-operation with DfID. This includes corporate services sharing and increasing the co-location of offices.[145] DfID will then pay the FCO towards the overall costs.[146] Forty-five DfID offices and approximately 600 of its staff are currently co-located with the FCO. The FCO and DfID have a target to increase the proportion of co-located offices by over 10% and the proportion of DfID staff in co-located offices by over 25% by the end of the CSR07.[147] The FCO also has an agreement with DfID that it will move towards the FCO's Future Firecrest platform from 2010-11.[148]

93. The FCO's Annual Report stated that it has also agreed to work with the British Council to share services.[149] Margaret Mayne told us that the Council already worked "very closely" with the FCO in a number of areas. These included shared arrangements for the provision of web services and close cooperation on procurement, particularly for mobile phone, travel and hotel contracts. She explained that the British Council was now talking to the FCO and DfID about sharing arrangements for banking and managing foreign exchange. It was also exploring shared services in the back-office accounting function, and opportunities for shared services in transaction processing.[150]

Efficiency monitoring

94. Treasury guidance for Departmental Annual Reports demands detail on how efficiency gains claimed in previous years have been audited and the auditor's conclusions. Additionally, the Treasury Committee has recommended that departments should report their efficiency savings with reference to the Office of Government Commerce (OGC) classification of 'provisional', 'interim' and 'final', to help the reader to assess whether reported savings have been independently verified.[151] We asked the FCO to give us an analysis of the Department's reported efficiency savings according to the OGC classification, as well as copies of the Department's latest quarterly efficiency monitoring reports submitted to the OGC.[152] The FCO replied to us in confidence.[153]

95. In February 2007, the National Audit Office (NAO) gave a "red rating" to the measurement of efficiencies in the project relating to the overseas network of the FCO staff engaged in UKTI work, because there was uncertainty whether efficiency gains were being double counted between the FCO and the UKTI.[154] We asked the FCO what measures it was taking to ensure that there was no such double counting of efficiency gains.[155] It told us that there was no direct double counting as the FCO and UKTI efficiency programmes were reported separately. Most FCO efficiency projects also had "no relation" to UKTI and, the FCO explained, where elements within projects could be identified as coming directly from UKTI savings, such as the UKTI elements of the Alternative Representation project, these elements were excluded. However, the FCO told us, in some projects it had:

not been possible to exclude indirect effects […] if UKTI reduces its presence in a post, this may make easier reductions in management and support costs that may be recorded as part of the FCO's efficiency programme.[156]

96. We recommend that the FCO and UKTI work together to ensure that any reduction in FCO management and support costs that occurred as a result of UKTI reducing its presence in a post is recorded as accurately as possible in order to prevent any double counting of FCO and UKTI efficiencies.

120 Foreign and Commonwealth Office, Departmental Report 2006-07, Cm 7099, May 2007, p 126 Back

121 Ev 69 Back

122 Ev 69 Back

123 Foreign and Commonwealth Office, Departmental Report 2006-07, Cm 7099, May 2007, p 122 and 126 Back

124 Foreign and Commonwealth Office, Departmental Report 2006-07, Cm 7099, May 2007, p 126 Back

125 Ev 69 Back

126 Ev 97 Back

127 Ev 97 Back

128 Ev 118 Back

129 Unclassified minutes of FCO Board, 31 January 2007 Back

130 Unclassified minutes of FCO Board, 30 March 2007 Back

131 Unclassified minutes of FCO Board, 23 July 2007 Back