House of Commons - Foreign Affairs

Select Committee on Foreign Affairs First Report

6 FCO Services

134. FCO Services became an Executive Agency on 1 April 2006. As part of this process it has reformulated its business mission, which now focuses on delivering "secure services", including IT, logistics and a secure environment, rather than providing "support services".[218] It delivers services to both FCO and non-FCO customers.[219] FCO Services employs approximately 1100 staff and delivers over 130 chargeable products.[220]

135. In the last financial year, FCO Services had transformed from a loss-making internal department of the FCO into a surplus-making Agency. It increased revenues from non-FCO customers by 3.4%, increased customer satisfaction by 10% to 84% and reduced trade debts from over £22 million to £3million. The FCO argued that efficiency savings of at least 15% of total costs should be achievable by FCO Services over the next 5 years.[221]

136. The FCO told us that this transformation had been achieved by improving "relationship management and credit control processes".[222] Dickie Stagg explained:

What has happened is that we have changed some of the organisation's incentives so that there is now a bigger incentive for people to operate in a more businesslike way. We have got the FCO working more efficiently as a customer. Previously, there was a slightly cosy relationship in which people would scratch each others' backs; now, there is a much more transparent, commercial relationship in which people know what they are paying for in goods and services.

He added that the new Chief Executive and senior management team had also "helped to give the organisation new focus and energy."[223]

137. The FCO is currently running a consultation on its plans to convert FCO Services into a Government Trading Fund, that is, a service that can generate income, on 1 April 2008.[224] It told us that as a Trading Fund, FCO Services would "remain an integral part of the FCO". The Foreign Secretary would retain overall strategic control and direction of FCO Services, the FCO would agree its Business Plans yearly and its in-year performance would be reviewed quarterly by a Ministerial Advisory Board chaired by the Parliamentary Under-Secretary. The FCO also stressed that even as revenue from non-FCO customers grew, the FCO would remain FCO Services' "principal customer and stakeholder".[225]

138. However, as a Trading Fund, FCO Services will clearly have greater commercial and management freedom. We asked Sir Peter Ricketts about the accountability arrangements that would be in place between the FCO and FCO Services when it became a Trading Fund. He told us:

It will have more of an arm's length relationship with the FCO. I think that the Foreign Secretary will still have strategic oversight for setting its objectives and overall targets, but the Chief Executive will be separately accountable to Parliament.[226]

The FCO consultation document about the decision to turn FCO Services into a Trading Fund states that the relationship between the FCO and FCO Services will be set out in a Framework Document, as well as Terms of Business and Service Level Agreements.[227]

139. We welcome the benefits that have been realised since FCO Services became an Executive Agency. However, we are concerned that once it transforms into a Trading Fund and becomes increasingly reliant on non-FCO clients, there is a risk that the quality of its services to the FCO may decline. We recommend that the FCO put safeguards in its Terms of Business and Service Level Agreements with FCO Services to ensure that it will be able to obtain good quality services from FCO Services at a reasonable price. We will monitor the work of FCO Services carefully and will consider inviting its Chief Executive to give evidence to us after 1 April 2008, when FCO Services becomes a Trading Fund.

Language training

140. FCO Services has concluded that it is not appropriate for it to continue to provide Language Teaching. In March 2007 the FCO informed the Committee that it had decided not to take on the Language Teaching operation as it was not "financially viable".[228] The FCO's language centre will close on 2 October.[229] The FCO has decided to adopt "a new business model [which] will entail more training overseas"[230] and outsourced training in London governed by framework agreements with at least two possible suppliers for each foreign language.[231] An invitation to tender was put out on 22 August 2007.[232]

141. In a written answer the FCO expanded on its reasons for not taking on the Language Teaching operation:

- the business demand for language training is changing from one-to-one to group training, a much more effective way of delivering tuition, involving four hours per day direct teaching time;

- demand for all languages fluctuates considerably;

- the recommended productivity of teaching staff (percentage of time spent teaching as opposed to other tasks e.g. lesson and exam preparation, producing materials, administration, pastoral care and liaising with overseas centres) is between 45 and 50 per cent. Very few languages attain this level and productivity is likely to fall below 30 per cent. in most languages with the move to group classes and more in-country training;

- a flexible hours and agency model operating on a "pay per use" basis achieves good productivity rates. Most external providers employ this model because of the fluctuations in demand;

- FCO language training costs on average 15-40 per cent. more than other providers;

- 40 per cent. of our existing teaching for priority languages is currently out-sourced despite our large in-house teaching staff; and

- performance by exam results indicates that the quality of teaching is not enhanced by having a permanent workforce.[233]

Sir Peter Ricketts told us:

[…] I do not want to leave any impression that we are somehow short-changing language training in the FCO. Frankly, the efficiency savings are not the only reason or even the main reason for the closure; the main reason is to have the most flexible and efficient way of teaching languages.[234]

142. The FCO estimates annual savings of £1.5 million.[235] It argues that "the level of language teaching will not be adversely affected".[236] In oral evidence Sir Peter Ricketts committed himself "100% […] to maintaining the excellence of our language speaking abilities in the FCO."[237] In response to a written question about whether the proportion of language training would change, the FCO replied that: "it is proposed that in-country training will increase from current levels for those requiring a high proficiency level".[238]

143. However, the number of staff receiving language training has decreased from 405 in 2004-05 to 252 in 2006-07.[239] We queried this decline in our evidence session with the FCO. David Warren replied:

Several factors go into a fluctuation in the numbers receiving language training, one being the number of posts; we are localising slots and not deploying UK-based diplomats. Another factor is that we are reusing diplomats who have existing language skills. In some cases we are recruiting diplomats with language skills. We are fast-tracking diplomats with the specific language skills that we want at the recruitment stage. […] we are not looking at any systemic or structural decline in the numbers receiving language training.[240]

144. Sir Ivor told us that he regretted the abolition of the language centre:

What concerns me particularly is that, going to outside consultants, they will not understand what the Foreign Office is all about, and what sort of specialised knowledge it needs. Some of the language centre people with whom I worked closely were outstandingly able, including those involved in the production of manuals on diplomatic language and the intricacies of diplomatic negotiation, which you would never find in a commercial company.[241]

We agree.

145. We recommend that the FCO reconsiders the proposal to close its language centre. High quality language training is a vital part of successful diplomacy and we are not convinced that it will be successfully delivered by an outsourced model. In particular we are concerned that there appears to be a significant drop in the number of staff receiving language training over the last two years.

Redundancies

146. In March 2007, the FCO wrote to us announcing redundancies as a result of FCO Service's new strategy. It explained that four areas employing eight staff would close, and that five further service areas, employing 114 staff, were under review. The largest unit of redundancy was the language centre, which employed 58 full-time staff and 46 flexible lecturers.[242]

147. FCO Services and the FCO entered into consultation with Trade Unions in March. The FCO is trying to identify opportunities to redeploy staff, but the formal consultation process does include the option of redundancy.[243] Sir Peter Ricketts told us the FCO was going through the process of redundancies "carefully", because it wanted "to be good employers and follow absolutely best practice in that area.[244]

148. We asked Sir Peter Ricketts about levels of morale. He replied:

It is always going to be difficult when you have an organisation that is going through a period of real, profound change, as FCO Services is, with some reductions in numbers. Equally […t]here is a real sense of purpose in the organisation now. When it is through the transformation, which is going to be difficult, there will be quite a sense of pride that it has converted itself from an internal department of the FCO into a Trading Fund that can go out in the market and do good work against the competition […] There is a very strong, forward perspective for FCO Services, and that will lift morale.[245]

149. We are concerned about the impact on staff morale of the redundancies related to FCO Services' new business strategy. We recommend that the FCO inform us whether it has formally assessed staff morale in FCO Services and the results of any such survey. We hope to visit Hanslope Park ourselves shortly and have discussions with staff.

218 FCO Services, Annual Report and Accounts 2006-2007, HC 753, 24 July 2007, p 5 Back

219 Ev 48 Back

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

221 Ev 69 Back

222 Ev 69 Back

223 Ev 101 Back

224 Foreign and Commonwealth Office, FCO Services: Moving to Trading Fund status Consultation Document, July 2007, available at www.fco.gov.uk Back

225 Ev 69 Back

226 Ev 101 Back

227 Foreign and Commonwealth Office, FCO Services: Moving to Trading Fund status Consultation Document, July 2007, paras 4.1-4.2 Back

228 Ev 48 Back

229 Ev 118 Back