Examination of Witnesses (Questions 20-39)
SIR BILL
JEFFREY KCB AND
MR TREVOR
WOOLLEY CB
4 NOVEMBER 2008
Q20 Chairman: Is it what you will
say next year?
Sir Bill Jeffrey: I hope not.
I think we will have a better picture before then and we can certainly,
if the Committee would welcome it, provide some analysis of this
issue as we see it at present. It is certainly not one in which
we are at all uninterested and, for the avoidance of doubt, it
is one that we do play into our discussions with the Treasury
because we do draw to their attention some of the cost pressures
that we face that we have just been describing.
Q21 Chairman: What is the timescale
for the outcome of this work?
Sir Bill Jeffrey: I think the
detailed work will take a year.
Q22 Chairman: It has already taken
a year, has it not?
Mr Woolley: It has but in terms
of the information that we need to assemble through an analysis
of all the different defence contracts this is a time-consuming
process, and obviously we need to have an intellectually robust
product at the end of it, and we expect that to take another year.
Q23 Chairman: Another year?
Mr Woolley: Yes.
Sir Bill Jeffrey: I do think since
the Committee is as interested in this topic as it obviously is,
we should try to furnish you with a note with what we are able
to say about this issue complex as it is.[4]
Chairman: It would be helpful if you
could because, as you say, it is very important in your negotiations
with the Treasury. Brian Jenkins?
Q24 Mr Jenkins: I am sitting here
listening to the answers and in some part you have answered some
of the questions. Going back a number of years, I remember going
through the retail price indices with families and pensioners
and why they are different. It is only recently (this was 30 years
ago) we started re-establishing the differences in different groups
and different purchasers. When you start talking about it is difficult
to estimate the rate of inflation because of inputs and outputs,
they seem quite simple calculations to do: an input analysis and
a rate of inflation. What worries me is the widespread belief,
and I do not know how you answer this, where everyone recognises
out there that the MoD is a customer that buys last year's technology
at next year's prices and you are tied into long contracts which
do not appear to have taken any inference from the falling cost
of technology whereas anyone around the table would know that
the technological advances we have seen in society in consumer
goods should be reflected back through the producers into the
goods you are purchasing. Why is that not happening?
Sir Bill Jeffrey: To some extent,
Mr Jenkins, I think the argument in the defence area is about
numbers of repeats. The huge savings in the civil sector tend
to be in areas where there is a mass market and there can be massive
economies of scale through production. We are in a different sort
of business and we have to recognise that. I do not think it is
fair to say that we get last year's technology at next year's
prices. We certainly try to negotiate the best prices we can.
As Mr Woolley said, there are variational price clauses in most
contracts that are intended to address that. I am not saying to
the Committee there is not an issue there. It clearly is the case
that if you look at the basket of things that we acquire that
there are significant variations in year-on-year costs within
it. We understand a bit about that but the detailed exercise that
we have been at for some time, and I fear will be at for a bit
longer is intended to get much more under the surface.
Q25 Chairman: Is the real risk that
the best will be the enemy of the good? Moving on, your Report
and Accounts were qualified this year. When were they last qualified?
Sir Bill Jeffrey: They were qualified
the previous year for an entirely technical reason, which I am
sure the Committee will recall, to do with the expenditure in
theatre.
Mr Woolley: There was a small
over-spend on "Requests for Resources 2", that is the
cost of operations, in 2006-07 which led to a technical qualification
by the National Audit Office because of that overspend, but in
terms of the substance of the Accounts they were last qualified
in, I believe, 2002-03.
Q26 Chairman: The qualification this
year was not what you would describe as a small technical qualification?
Sir Bill Jeffrey: No it was not.
Q27 Chairman: Is it serious? It sounds
pretty serious to me.
Sir Bill Jeffrey: It is. It is
serious and troubling and we are working hard to make sure that
it does not happen at the end of this year. As is I think clear
from the Accounts, it reflects the fact that although the Joint
Personnel Administration system is, we believe, now bedding down
for the principal purposes for which it was introduced, it has
had quite serious problems in terms of its ability to give us
and give our auditors the information they need about expenditure
on Service pay and allowances that would give them the confidence
to test that aspect of our Accounts, so it is serious. I asked
for an internal piece of work, which the Committee I think will
be aware of, to be done which revealed that, looking back on it,
the JPA project paid too little attention to the extent to which
the system that was being produced would feed the Accounts and
give us the confidence to have the Accounts properly audited.
We are working very hard at the moment. I had a conversation with
the recently appointed Chief Executive of the Service Personnel
and Veterans Agency a week or so ago to address all the issues
that the NAO drew to our attention and on which we were already
working, with a view to sorting this out as quickly as we can.
Q28 Chairman: So you have introduced
new financial controls on JPA. Do you think that these controls
will have the effect that the Accounts will not be qualified,
or at least not for the same reason next year?
Sir Bill Jeffrey: I would not
care to make a confident prediction about that yet because as
we have gone into it there is a lot to be done to correct the
situation, but there is a good prospect, and we are working very
closely with the NAO who have been extremely helpful over this,
of getting to the point where they can give us unqualified Accounts
in this respect at the end of the current financial year.
Q29 Chairman: Why would you not be
confident of that?
Sir Bill Jeffrey: I think principally
because of the technical complexity of this issue. It comes down
to the means by which very, very large numbers of payments are
made in a system, notwithstanding the extent to which the JPA
is enabling us to make it simpler, which is extremely complicated.
I do not know whether Trevor Woolley would like to add to that.
It is proving a difficult task but there is a lot of effort being
invested in it.
Mr Woolley: I think the difficulty
is that we have replaced a manual system with an automated system.
In a manual system there are lots of opportunities for manual
intervention if it looks as if a payment is being made at the
wrong level or to the wrong person. The automated system we have
in JPA does not have that same level of control and the same level
of evidence that the right payments have been made to the right
people. There is no suggestion that there is a significant amount
of wrong payments being paid but there is no actual evidence to
satisfy the NAO that the right payments are being made. The reason
I think we cannot be absolutely confident is that although we
are putting a lot of procedures into the system to give greater
assurance, it will only be at the end of the financial year that
the NAO tell us whether in their view there is sufficient assurance.
Q30 Chairman: So the set of suggestions
that the NAO have made about completing a systems map, having
new processes to ensure that there are not input errors or output
processing errors, an overall plan for prioritising issues, are
those recommendations ones which you are following?
Sir Bill Jeffrey: Yes exactly,
and we are doing so as quickly as we can because I can assure
the Committee that this is something that as Accounting Officer
I take extremely seriously.
Chairman: Still on JPA, Richard Younger-Ross?
Q31 Richard Younger-Ross: In terms
of self-service satisfaction you told us that the JPA Centre was
currently running at 45.5%. How do you intend to improve that
figure?
Sir Bill Jeffrey: I thought the
current figures (although I do not have them in front of me) were
better than that. Certainly I know that the satisfaction surveys
have been on an upward trend and some of the teething problems
that we undoubtedly had as we initially rolled the system out
have been addressed successfully so that people are now getting
their basic pay without interruption, but I do not have an up-to-date
satisfaction survey figure in front of me. My recollection is
that it is a bit higher than you have just quoted.
Q32 Richard Younger-Ross: You say
it is going up?
Sir Bill Jeffrey: Yes.
Q33 Richard Younger-Ross: When is
it going to get to the 90-95% level which is what I would expect
from any pay roll system, if not higher?
Sir Bill Jeffrey: As quickly as
possible. I would find it hard to put a date on that but again
this is something I discussed with the new SPVA Chief Executive
when she took over and building up the satisfaction levels within
the system is something that I have asked her to take as a pretty
high priority.[5]
Q34 Richard Younger-Ross: The contract
you let out to do this ran at an addition of £2.3 million
over budget. Only £516,000 of that was reclaimable from one
of the contractors EDS. Why was so little reclaimable?
Sir Bill Jeffrey: There is a provision
in the contract for a failure charge which is essentially something
that takes account of the nature of any failure in service delivery
under the contract and also the extent to which it is reasonable
to attribute responsibility either to EDS or to the Department,
and there is an agreed procedure for settling between us what
failure charges should be imposed on EDS. In 2007-08, as you say
Mr Younger-Ross, that figure was £516,000.
Q35 Richard Younger-Ross: So the
other nearly £1.8 million is a failing by the Department?
Sir Bill Jeffrey: I would not
be absolutely certain that is the sole explanation but it is certainly
the case that the half million or so was as much, consistent with
the contract, as we thought it reasonable to impose as penalties
on EDS.[6]
Q36 Richard Younger-Ross: It has been
suggested that part of the problem was that the hardware was designed
in one part of the country and the software in another part of
the country; is that true?
Sir Bill Jeffrey: It depends which
problem you are talking about. If we are back at the problem of
the issues which led to the qualification of the Accounts, the
source of that was, as I have said, the project paid too little
attention to the financial dimension of the issue. If your point
is about the extent to which in its early days the system in all
three Services suffered teething problems and there were issues
that gave rise to complaints, I think I would argue that with
big systems of this sort inevitably this is going to happen to
some extent. I do not recall ever having been told that the particular
way in which the hardware and software were put together contributed
to that.
Q37 Richard Younger-Ross: I think
we would all accept that you can have some small teething problems
in any system but this seems to have been a major failing and
if the satisfaction figures, which I am told by the way are up
to 77%, were down to 45% at one point, that strikes me as not
a small teething problem but a systemic failing.
Sir Bill Jeffrey: I am not going
to sit here and defend 45% as a favourable rating but having seen
one or two of these things across government there is a period
when not only are some people affected by mistakes in the system
but a lot of others who know them know about them and therefore
there is a sense around that the system is not performing and
that reflects itself in favourability ratings. The figure that
I did not have but your Clerk has been able to provide you with
suggests that we are on quite a rapid upward trend, as I believed
we would be. These are big, complex systems and it is never at
all satisfactory or defensible when people are paid the wrong
amounts on encounter difficulties in the self-service element
of it, but I think we are getting into a better position now.
Q38 Richard Younger-Ross: That is
what I mean, Sir Bill. You seem to accept that this level of failure
is acceptable. The real question that we want as a Committee to
know is how do you stop failures like this occurring at future
dates?
Sir Bill Jeffrey: It is principally,
as the project is developed, by taking as much of the risk out
as possible and delivering it carefully in stages so there are
as few risks as possible of things going wrong. I do not remotely
want to say that this was completely satisfactory, of course it
was not, I am simply asking the Committee to consider the fact
that this was replacing myriad manual systems, it was covering
a very large population of employees, it was essentially automating
a pay and allowances system which is extraordinarily complex and
needs to be made less complex, and therefore it perhaps was not
as surprising as all that that we encountered some of the problems
that we did.
Chairman: Moving on to the implementation
of the efficiency programme, Robert Key.
Q39 Robert Key: The achievement in
cutting civilian staff numbers has been quite remarkable. Your
target was to reduce the civilian staff by at least 10,000. The
achievement to the end of year 2007-08 was actually to cut civilian
staff by 17,500. That has however clearly been achieved at a substantial
cost and I draw the Committee's attention, Chairman, to the Annual
Report and Accounts, paragraph 213, on page 127 and if I may,
I will quote two sentences: "We must address the limits on
individual and organisational performance imposed by the variable
quality of management and leadership and the limitations of our
pay and reward structure. We must address the threat to future
capability flowing from the skills gap associated with streamlining
the Defence Equipment and Support Business Strategy, the lack
of a deep understanding of our skills needs and our uncertainty
over whether we will have an adequate supply of talented people
sufficiently representative of the society we serve to fill key
posts in the future." That is a very, very bleak assessment
of how you have managed to cut 17,500 civilian jobs. Is this what
has been contributing to the stretch currently experienced by
the Armed Forces themselves—not just civilians? It has had
an impact, surely, on the efficiency of the uniformed members
of the Armed Forces?
Sir Bill Jeffrey: I think, Mr
Key, there are two different issues here. One is that we were
committed to reduce the number of civilians and the Joint Personnel
Administration Project, which we have been discussing, is an example
of one of the means by which we did so, by automating processes
that were labour-intensive. Another good example is the Defence
Logistics Transformation Programme where we have reduced the number
of civilian staff very significantly by doing things smarter,
and I think the report brings out in many respects very successfully.
Reducing civilian numbers is something we have been working on
and ought to be working on and every other part of government
is doing so. That we over-achieved to the extent that we did I
think reflects the particular situation in one or two parts of
the organisation, of which the Defence Equipment and Support organisation
is a contributor in the sense that we lost people more rapidly
than we had probably been expecting, but it also reflects the
fact that some of these efficiency measures did deliver achievable
reductions in civilian numbers. The second point is the one dealt
with in this paragraph which may be on the self-critical side
but it does bring out the fact that as a Department we have to
look to our skills base in particular and we have been developing
a strategy for doing that right across the board, in relation
to financial accountancy skills in Trevor Woolley's area, commercial
and project management skills and some of the high-tech skills
as well so we very much need strategically to build the skills
of the Department to face the challenges of the future.
4 See Ev 40 Back
5
See Ev 41 Back
6
See Ev 41 Back
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