Examination of Witnesses (Questions 20-39)
DEPARTMENT FOR
TRANSPORT
9 JUNE 2008
Q20 Mr Mitchell: So you wanted the
savings to achieve Gershon's targets and you therefore overestimated.
Mr Devereux: We certainly anticipated
making savings from this towards our Gershon target.
Q21 Mr Mitchell: Was it plucked out
of the air?
Mr Devereux: No, we spent six
months working carefully in a support services review and then
had further work done by Deloittes to validate the savings. The
extent of the potential savings were not plucked out of the air.
Let us just stay with the overall story on Gershon because it
is quite important in terms of where the department is coming
from. The first paragraph of this Report explains that we were
set a target of £785 million to be saved in 2007/08, half
of which was to be saved in cash. That is £390 million of
cash savings were required out of the Department. We published
our annual report just a couple of weeks back. We have actually
managed to achieve £640 million of cash savings.
Q22 Mr Mitchell: The estimates must
have been too high. I see in paragraph 1.8 that "the Department
delivered a design blueprint but could not agree a common set
of underpinning business processes, and the resulting level of
customisation of different processes for individual agencies—some
of which was necessary for the operation of shared services—increased
cost and complexity".
Mr Devereux: I am not sure I am
following the argument. When we started this, on the basis of
quite careful work to do with benchmarking across the private
sector in particular and benchmarking within the department, we
sought to assess the level of achievable savings. That is where
the £20 million comes from. It is true to say later on, as
we went through this, that we have difficulties in delivering
it, which is what the National Audit Office is recording, but
the savings themselves were not plucked out of the air.
Q23 Mr Mitchell: You were predicting
savings and then being sloppy about the planning of them. Why
did you not have a competitive bid for it? Why was the work entrusted
to IBM? Were you mates? Was there some kind of feeling of friendship
for IBM? Admiration?
Mr Devereux: No. Let me come back
to the point the Chairman has already identified. We deliberately
set off on this with an ambitious timetable. It was our assessment
that three things were true, one was that we were intending to
build this on the systems which DVLA had already started on and
they themselves were being supported by IBM; secondly, because
we wanted to get on with it and we were being advised it was possible
to do this in the space of a year, not in the space of two years.
The fact that we already had a contract—which had been won
in competition by IBM, let us be clear—and had the flexibility
to do this, suggested to us that actually the alignment between
business processes which had already been defined in the DVLA,
and a contract and a contractor which had perfectly properly the
ability to do this work, meant that we were able to deliver the
one year target we originally set ourselves.
Q24 Mr Mitchell: You also thought
you could trust them and you were wrong.
Mr Devereux: I do not believe
in trusting suppliers.
Q25 Mr Mitchell: They did not tell
you you could have got more competitive rates and that you were
eligible for them because of the increased volume of work.
Mr Devereux: I perfectly understand,
and so does DVLA, the structure of this fairly complicated contract.
It provides for the DVLA on 12 months' notice to get the best
available rates.
Q26 Mr Mitchell: So it is all the
fault of the DVLA.
Mr Devereux: No. I am just describing
the contract. The contract describes that if the DVLA or the Department—call
it the Department if you wish—gives IBM 12 months' notice
we get the best rates, unsurprisingly, because they have time
to plan.
Q27 Mr Mitchell: Paragraph 1.8 tells
us that the "Driver and Vehicle Licensing Agency and the
Driving Standards Agency were themselves insufficiently prepared
for implementation".
Mr Devereux: Yes.
Q28 Mr Mitchell: Yet you are trusting
them to get the best rates.
Mr Devereux: There are two separate
sections of the Report. There is one about the merit or otherwise
of choosing the IBM contract which, as I said, was because of
the timetable that we chose to go with and the fact that the contract
enabled it. I have explained why the rates were not as low as
they might have been because we deliberately chose not to give
12 months' notice as we intended to finish this in 12 months,
therefore we were using higher rates. The second point that you
are making about the extent to which the DVLA and DSA were not
prepared. If you read it, it is about their actual internal preparations:
did their staff understand how the system would work and about
the organisation, it was not about the IBM contract.
Q29 Mr Mitchell: You are answering
very fast; it is all a bit glib to me.
Mr Devereux: You are asking a
lot of questions and I am trying to answer each of them.
Q30 Mr Mitchell: Paragraph 1.16 tells
us that, "the Department's use of the framework agreement
to commission work and manage IBM were not conducive to controlling
costs. For example, the Department did not take advantage of cheaper
day rates that were available under the framework agreement for
bulk work due to the piecemeal way in which the work was commissioned."
Did you have indication about this from IBM, that you could have
got it cheaper?
Mr Devereux: As I have sought
to explain, this sentence is basically saying: had we given them
12 months' notice we would have got lower rates. It is not saying
that the way we went out to contract it we somehow ended up with
higher rates than we should have got for something done at that
notice. There is a distinction here between the extent of notice,
which I am recognising we did not give for the reasons I have
already given the Chairman (about the ambition that was behind
this Department trying to get on ahead of Whitehall to deliver
this properly), and the reality and the structure of the contract.
Q31 Mr Mitchell: The whole thing
was based on the DVLA and it seems apparent from the Report that
they themselves were not ready, they were not prepared. Paragraph
1.28 tells us that and paragraph 1.4 tells us that a "supporting
IT system should be built on the existing processes and systems
at the Driver and Vehicle Licensing Agency and the Driving Standards
Agency, but take account of the needs of the wider Department".
It seems to me the concentration of work and the central focus
being on the DVLA actually got you into somewhat of a mess.
Mr Devereux: Perhaps I can take
you to paragraph 1.12. That describes in some detail exactly what
was at DVLA pre-existing this decision and what was not. It basically
says that the DVLA and the DSA used an older version of SAP to
provide finance, some basic human resources (by which they mean
an internal database of staff) and some procurement functions.
That is a lot less than we have now delivered in the Shared Service
Centre. To give an example, there is no employee self-service
in that pre-existing DVLA world; there is no way of accessing
that pre-existing DVLA world. It is correct to say that we built
on them because they had already implemented a SAP system; it
was already capable of doing the right thing in terms of the way
in which you use invoices, but it was only part of what we were
trying to get to.
Q32 Mr Mitchell: Paragraph 1.12 tells
us, "The newer generation SAP Enterprise Resource Planning
system could be achieved either by upgrading the old SAP system
or replacing the latter with the newer version, and the Programme
Board elected to adopt the latter option. Best practice would
have been to review the business case at this stage to assess
the impact of this change". Why was that not done?
Mr Devereux: The short answer
to that was that the absolute difference in costs between a licence
for the new system and the old system is quite small. As the Report
goes on to say, some of the things which, having got the new system,
were then possible which may themselves have added to cost is
a separate issue and would not have come up at that point. When
it says "elected to adopt" it makes it sound as if they
did this on a whim. There is a very substantial piece of analysis
that the Programme Board did to decide which of these two courses
was the best one to go for, and that is the one they based their
decision on.
Q33 Mr Mitchell: Since that was signed
off in January 2006 it must have been clear by then that some
of the economies you had expected from the original were not going
to occur and the costs were going to be increased.
Mr Devereux: What is going on
in January 2006 is the Board re-visiting what they decided in
April 2005. The April 2005 decision is, by definition, an outline
business case; it is before any detailed design. By the time you
get to January 2006 we know the answer on the design, we know
that we have chosen SAP Enterprise Resource Planning system. At
that point we still have a project which is projected to have
a £37 million present value.
Q34 Mr Mitchell: What is the situation
now? Have you become addicted to IBM? You are dependent on their
consultants and their consultants will be withdrawn, and yet they
are a substantial proportion of the teams developing the system.
What happens? Can you work without them?
Mr Devereux: IBM are significant
suppliers.
Q35 Mr Mitchell: IBM are a profit
making company.
Mr Devereux: Yes, I know. I do
not imagine you would like me to be running a computer company,
so we actually buy in people on the basis of a contract which
they have tendered for. They have delivered, through the DVLA,
for example the ability to do your tax on line, connecting it
up with the MoT test; they have delivered the ability for the
police and the courts to directly access the driver licence database;
they have delivered the ability to make the transactions at the
post office more secure. All of these improvements in customer
service which the DVLA are offering their customers are based
on the work they have been doing with IBM. This is a long term
project and that is where it comes from.
Q36 Mr Mitchell: I think you are
too trusting of them.
Mr Devereux: I am not going to
accept that I am too trusting of them. The Report correctly identifies
that we are approaching a point where we have a choice about whether
to exercise a break in this contract. The Board of the Department
had a long conversation ten days ago about exactly what was already
on the table in terms of improving the offer. I have offers on
the table both in terms of the rates for this contract and for
the way in which they deal with phase six, on which Barbara wants
to say more.
Q37 Mr Mitchell: This system, the
common services, applies to six, later increased to seven, executive
agencies. I wondered from a point of view of Government re-organisation—which
periodically come along when agencies are transferred from one
department to another with the whole packaged shuffled round—how
are they tied in now? This diminishes the flexibility of the system
because taking common services they are all tied in to you whereas
a future government might want to shove them to another department.
Mr Devereux: Doing nothing because
there may be government change is not an acceptable option either.
The reality is that the hardest thing in this shared service has
been to get each of the agencies to understand and define the
business processes they operate. Having so defined them they will
be so much better able to move almost anywhere else. The hardest
thing in this is actually getting those definitions done in the
first place which is what they have now done.
Q38 Mr Bacon: Mr Devereux, there
is nothing odd, strange or difficult to predict that there will
be an issue about defining business processes accurately, is there?
Mr Devereux: I do not think so.
Q39 Mr Bacon: It is pretty normal
in taking an organisation and trying to introduce a computer system
to it; it is a standard thing, defining business processes accurately
before you make any further progress. I do not deny that it can
be quite difficult to do it accurately, as you have just said,
but the fact that you have to do it and you have to get it right
is predictable.
Mr Devereux: It is, yes.
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