Spend, spend, spend?-the mismanagement of the Learning and Skills Council's capital programme in further education colleges - Innovation, Universities, Science and Skills Committee Contents


Examination of Witnesses (Questions 220-239)

MR CHRIS BANKS, MR GEOFF RUSSELL AND MR DAVID HUGHES

20 MAY 2009

  Q220  Mr Marsden: What did he tell you?

  Mr Hughes: He shared the concern we had, and there were two concerns: there was the in-year spend which we have and we have always managed and, therefore, the car crash did not quite happen, but the big problem was the focus was on in-year was at the expense of the forecasting of the five-year horizon, and that is the bit we got wrong. I think Foster made it very clear that we got it wrong by a few months. There was a surge of demand halfway through the year, and we missed that.

  Q221  Chairman: I cannot let you get away with that, with the greatest of respect. You actually reflected what the Edwards Report says. You are quite right, it is the terms of its conclusions, but I wonder if you ever read the report, because paragraph 21 says this: "From 2010 to 2013, however, if current policies did not change and the tempo of capital projects is maintained, the demand for capital grant payments moves in 2010/2011 up to 450 million above the funds available for FE projects", and it went on to say, "This simply proves that the continuation of the current payment profile of projects is unaffordable to the council." It was not just an in-year problem, the significance of the Edwards Report is that it was saying, unless there was significant change, this is unaffordable.

  Mr Hughes: The changes were set out in the recommendations, and we said we need to implement the recommendations and we need to move forward, which is, with respect, what I said earlier.

  Q222  Chairman: No.

  Mr Hughes: So it is really important. We said two things: we need to manage in-year and we need to do the prioritisation, we need to limit the grant, we need to think about phasing in over five years rather than three, as is set out here.

  Q223  Chairman: But it seemed to be that, despite this, the message was going out, and you were a part of this cross-cutting group at the time—you might say it did not happen in London, but it clearly happened everywhere else—that people were told to beef up their projects.

  Mr Hughes: I am not sure there is any evidence that that happened.

  Chairman: Why did they do it then? Was it osmosis?

  Q224  Mr Marsden: Unless you are going to say that the previous witnesses are not being accurate. We have had evidence from the previous session.

  Mr Hughes: I missed that; I apologise.

  Q225  Mr Marsden: No, we are not saying that, but, please, for the record, understand that the reason we are asking these questions is that we have had two college representatives before us this morning who have already said exactly what the Chairman has said, that these projects were talked up by regional LSC advisers, and that is why. You must have been an oasis of rectitude compared to the rest.

  Mr Hughes: As I said, I can confirm that absolutely we did not do that.

  Chairman: No. Okay, that is your word and that is exactly right.

  Q226  Graham Stringer: When I looked through the whole of the capital project list of what has been agreed and spent and what is likely to be spent, compared to the Building Schools for the Future scheme it seems to me that large capital projects are going to places like Bournemouth and Poole, with a £102 million project, and not to the areas of greatest need and most deprivation. How did you account for that balance in your projects compared to my constituency, inner city Manchester? How was that prioritised against Dorset and Poole or Stockport within Greater Manchester?

  Mr Hughes: I think that is what Foster set out; that it was a demand-led scheme. The first schemes that came through got considered—

  Q227  Graham Stringer: I know what Foster said.

  Mr Hughes: I am just backing him up. They were rigorously assessed at scheme level but they were not assessed in terms of need. That is why we have taken on the Foster recommendation and we are doing a prioritisation against need rather than saying let us have a look at your proposal and check it is fantastic value for money.

  Q228  Graham Stringer: Did it not occur to anybody within the LSC that this was a rum way of going about the thing?

  Mr Hughes: It did, and that is why we were starting to move towards a prioritisation scheme.

  Q229  Dr Iddon: Mr Russell has been very quiet, so we will bring him into the debate, I think. You are an auditor. Is that correct?

  Mr Russell: Yes.

  Q230  Dr Iddon: What is your perspective, as someone with a fresh pair of eyes, on what went wrong at the LSC during 2008?

  Mr Russell: You will forgive me, of course, starting out by saying that I have been focusing most of my attention on the future rather than the past, other than, of course, wanting to make sure that we learn the lessons, and Andrew Foster's report was extremely helpful to me in that respect. It was a clear analysis and it also made some very sensible recommendations. Obviously, I have listened to Chris and David. I think they both touched on what I think are a number of contributory factors to where we are today. Andrew Foster also mentioned (and I suppose this is more in my area of expertise) that the LSC did not have as good a strategic level of financial management, as they should have, and I can only agree with that.

  Q231  Dr Iddon: Were the auditing procedures sufficient, in your view, and, if not, have you changed them?

  Mr Russell: I do not really think it is an audit issue per se. I think what public sector auditors do is not necessarily to assess the strategic level of financial management. Having said that, to answer your question, in the private sector it would be unthinkable not to have the chief internal auditor report directly to the chief executive with a dotted line to the chairman of the Audit Committee, and I think it was probably less than two weeks before I was in position before I made that change.

  Dr Iddon: Let me turn now to what might happen to colleges who have lost money that has been laid down for the reasons that the previous panel said, and for the benefit of David Hughes it was for employing architects, surveyors and even, in some cases, demolishing buildings ahead of projects proceeding. The LSC and DIUS are said to be developing a policy position on reimbursing colleges who obviously put money out that they probably needed for other purposes. When will this procedure be finalised and what encouragement can you give to the colleges who have lost money in that way? I am not who sure who to direct that to, but the chief executive or the chairman.

  Q232  Chairman: I think probably to the chief executive.

  Mr Russell: Andrew Foster recommended that we have a transparent process engaging with the sector. We have done that. I think I probably met with Martin Doel within 45 minutes of my appointment, fortunately he happened to be in the same building, and that was the beginning of a conversation which has continued over the last two months. With regard to your specific question on some costs, Foster recommended that we needed to engage on that front. It is clearly an informed issue. It is important to some degree by who gets to go ahead and who does not. The more that get to go ahead, the smaller the sunk-costs issue will be. The LSC has clear rules that set out what colleges are allowed to spend money on at each of the stages. The external advisers that we have appointed are assessing that very issue for each college and we will have the position for each of them within days. Once we know who is going forward, we will turn to the issue of sunk-costs. We will do it in a sympathetic way, because clearly the LSC shares a great deal of responsibility for this and, as ministers have said, no college is going to be allowed to go bankrupt as a result of capital issues.

  Q233  Dr Iddon: So at this point in time you have not any idea what this reimbursement process is going to cost.

  Mr Russell: As I said, it will depend on who goes ahead and who does not. I think we have a pretty clear idea of what the total quantum of those sub-costs is.

  Q234  Dr Iddon: Are you prepared to say?

  Mr Russell: I think various figures are floated around, but my understanding (and I cannot say precisely, I have not seen the analysis) is that it is in the order of a couple of hundred million pounds potentially, but it depends upon who goes ahead and who does not. Clearly, the ones that go ahead, to the extent that they are shovel-ready, are the ones that could well have spent the greatest amounts already, so that might get rid of a fair chunk of the problem. There also has to be a judgment taken based on the analysis as to which colleges, if any, went beyond the guidelines of the LSC and what is a fair way of dealing with those costs.

  Q235  Mr Boswell: I have got two quick what might sound like business school questions, but I think they are very germane. Geoff, you have the exquisitely difficult job of a run-up strategy for an organisation which is coming to an end, and this was already announced and applied in your predecessor's time. How do you envisage dealing with that situation, and have you made some changes, in the light of this experience or more generally, as to how you are handling that?

  Mr Russell: The answer to the first question, how do I want to deal with it, is as quickly as possible. There was a plan in place when I arrived that said by September we will create shadow YPLA, SFA and people will start engaging with local authorities. Given the size and complexity of this organisation, and it is a huge organisation, plus the additional little problems we are dealing with, this one being an example, it seemed to me that the best way of managing that risk was to accelerate the process of getting ourselves into those new organisations. So even before any new management has been appointed, we have appointed transitional management within the organisation, we are going through the process of allocating people to where they should go and, as soon as humanly and operationally possible, we will try and get those organisations up and running in the most realistic way we can and see where the kinks are.

  Q236  Dr Iddon: The second question is: how you manage relationships, and whether those have changed, with your key stakeholders and partners at DIUS and DCSF at one end through to the college sector at the other? How do you see that and how much have you changed it?

  Mr Russell: When you are in a crisis, I think the only logical thing to do is to communicate, and communicate, and communicate, and so my job is to be engaging with all our key stakeholders. I have spent lots and lots of time with DIUS and DCSF at a ministerial and official level multiple times a week.

  Q237  Dr Iddon: So if Mark Haysom had an open door, your door is even more open, is it?

  Mr Russell: I do not wait for people to come in my door.

  Q238  Mr Marsden: Do you prowl the corridors?

  Mr Russell: In some cases. I am glad not to see all of my regions right now.

  Q239  Mr Marsden: Again, a very quick question to you, Geoff, on the basis of what you have heard already about the process having been demand-led, about there not having been a regional budget structure. Obviously you do not know the pot of money you are eventually going to end up with, but are you now looking to having a regional budget structure or a prioritised budget along different priorities as opposed to just a pot of money that is being doled out on a first-come-first-served basis?

  Mr Russell: One of the other things that happened quite quickly for me is that I got a copy of Andrew Foster's report. People may take issue with me, but my view is, for all sorts of reasons—the economy, value for money—we need to move from demand-led to needs-based, not just in capital but across our programmes. We also need to get the balance between the very successful regional structure that we have, very good regional relationships right between that and national oversight and co-ordination, not just in capital, which we have done, but in all programmes, because the world has changed. We have moved from an environment where it was, "How much do you want?" to "This is what you can have. Where is the best place to put it?"


 
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