Examination of Witnesses (Questions 40
- 59)
WEDNESDAY 9 JULY 2008
CHRIS MOXEY,
CLIVE HEAPHY,
STEVEN RYMELL
AND KEITH
LUCK
Q40 Andrew Mackinlay: One final
question. You deal with a high proportion of diplomatic bags.
There are these fellows who actually carry bags round the world.
They are very distinguished people, often ex-diplomats, with a
royal warrant. Do those people come under you and how long will
that practice go on for? I thought that it was going to be phased
out. I forget their title.
Chris Moxey: They are diplomatic
couriers.
Q41 Andrew Mackinlay: Tell me
about them. That is a nice little number, is it not?
Chairman: Mr Mackinlay is looking for
a new occupation.
Andrew Mackinlay: I also want to return.
However, there are such people who take bags around the world,
and they are very good servants. I am not trying to diminish them.
They were going to be phased out. What is the position on them,
and how much does that practice cost? What is the reason for it?
Chris Moxey: I feel that I must
address any misconceptions that the Committee may have. It is
not a cushy job. The work they do is highly valued and a very
good public service.
Andrew Mackinlay: Absolutely. I accept
that it is a good public service.
Chris Moxey: There should be no
suggestion that such people travel and spend longer in the situations
that they find themselves in than is entirely necessary for the
need that they fulfil. I would like to make that clear at the
outset.
Andrew Mackinlay: I fully accept that.
Chris Moxey: Diplomatic couriers
are not drawn from a privileged rank of individuals who have had
military experience, or whatever, in the past. A short number
of weeks ago, we went through an open public recruitment campaign
to recruit more diplomatic couriers into that part of our business.
We have had a large number of applications—in the hundreds—for
those roles, with people coming into the recruitment process from
many walks of life. I would not like you to think that it is just
a privileged part of the community.
Andrew Mackinlay: Not many people from
Tilbury are in it.
Chris Moxey: Equally, we have
no plan to close down the work of diplomatic couriers. They provide
a highly valued service not only for the Foreign Office, but for
other Government Departments of UK plc that find themselves working
overseas, and the services of these valued folk are extensively
drawn upon. The key is to ensure that they are used effectively
for the right kinds of material that need to be taken from place
to place. That is down to a security classification. Things of
little value can go through third-party means in the normal way,
using external courier firms, but things with a higher value might
need to be taken personally, as demanded by the various customers.
That is the service that we provide.
Q42 Andrew Mackinlay: Can we have
a note on it? I do not want to prolong the discussion, but I would
like a note on it. I would like to know how many there are and
how much it costs.[2]
Chairman: If there is any further information
that you can send us, that would be appreciated.
Chris Moxey: I would be happy
to share with you how many diplomatic couriers we have.
Q43 Mr Heathcoat-Amory: Can I
ask about your target growth for achieving outside work? You did
not achieve your target for the last financial year. Market trading
conditions are now very tough. Most of your work regards government,
and the Government go on getting bigger. To that extent, you are
probably still in quite a good sector. Can I ask about your plans
for external work? Have you scaled down your ambitions in the
light of predicted market conditions?
Chris Moxey: No, we have not scaled
it down. As I amplified previously, we must maintain that growth
agenda in order to ameliorate the possibility of any downturn
in revenue that the FCO may experience in the future. It is almost
essential that we ramp up our capability to bid for, secure and
deliver wider market services more generally. The growth target
that we have had over the life of our corporate plan looks for
a 68 to 70% increase in the work that we do in wider markets.
We are quietly confident that we will be able to do better than
that. In what is only month three of our life as a Trading Fund,
I would be reluctant to be drawn on why we have that confidence
behind us, and I would like to see a little more success delivered
before we expand upon that more widely. I am conscious, as is
our board, of the economic conditions that present themselves
to us, and I cannot draw back from the fact that it will be difficult
for us to secure that new business. Year in and year out we have
to sell to people, go through a negotiation process, convince
them that we are the best provider of a various range of services
and that they should choose us. You look at our performance last
year and say that we did not meet out target. Yes, technically
we did not—there was a falling short of around £400,000.
To my way of thinking, writing £12 million of new business
on top of the change programme that we had to manage was no mean
feat, and was a job well done by those involved in that part of
our business. Of course, we will have to do that again this year,
and our formal target is to increase that performance by at least
10%. That is a significant challenge. We need to resource appropriately
to be able to pursue it, and we need to be focused in the areas
of the business that we concentrate on, where we commit resources
towards signing.
Q44 Mr Heathcoat-Amory: Do you
do consultancy work, either for the Government or for firms, or
to what extent do you employ consultants? I am interested in the
extent to which the Government reaches for the consultancy lever,
which they do far too often in my view. Perhaps it is a good thing
if you can provide those services. Where do you stand in relation
to the world of consultancy?
Chris Moxey: If I interpret the
question in the way that I think you are proposing it, in terms
of large firms such as McKinsey, PA or what have you, no, we do
not provide consultancy of that kind. That is not what we do.
We seek to provide and deliver the services that form our strategic
mandate, whether in IT, security in all its manifestations, or
the provision of logistical services. That is what we are selling.
That is what we are offering. That is what we are pursuing.
Q45 Mr Heathcoat-Amory: You do
not employ consultants to tell you what to do so that you can
tell the FCO what to do.
Chris Moxey: This is a two-part
response. Not in the way that I think you constructed your first
question, but, yes, we employ consultants to advise us, which
we have done during the development period leading up to our becoming
a Trading Fund. I think that that is a different tangent though
to the one that you are expressing in your proposition.
Q46 Mr Heathcoat-Amory: Lastly,
how many agency workers do you employ on short-term contracts
to fill gaps, or on short-term assignments?
Chris Moxey: The ratio of our
employees to contractors is roughly 77:23, as an out-turn to last
year's performance. At the time of the accounts being closed,
we had approximately 262 contractors on our books. It is entirely
right that they are there, and it is highly likely that we will
bring on more or let some go as the peaks and troughs of the work
that we do flow through our organisation. That is very much a
core part of what we do to be able to respond efficiently, effectively
and quickly to meet our clients' needs. We can do that from the
resources that we have—full-time employees—but if
we need to supplement those resources at any time, it is normal
and right, I believe, to bring on, under the appropriate terms,
contractor resource to work alongside us to help us to fulfil
obligations.
Q47 Mr Horam: To go back to one
of your answers to Mr Heathcoat-Amory, you seem to differentiate
between the advice that you give in areas where you have expertise
and providing consultancy per se. Is that right? You seem to be
saying that you would provide that service to people outside the
FCO.
Chris Moxey: I hope that I have
not got on the wrong foot here in the way that we are interpreting
the question. If I could be specific, we are not like McKinsey,
PA, Deloitte or any other major consulting firm to whom clients
come for that kind of consulting advice and service. We are certainly
not in that environment. However, in the context of the work that
we do in IT, security and logistics, our people, because of the
skill that they have in that particular sector, may be called
upon to give advice in the context of delivering a package or
solution to a problem at hand.
Q48 Mr Horam: To people other
than the FCO.
Chris Moxey: Well, no, to the
clients to whom we sell. For example, if an organisation wanted
to do something with its IT environment, our people may come in
and advise on what they feel is the right solution, against the
problem or the brief that has been put before them.
Mr Horam: You could give that advice.
Chris Moxey: We could give that
advice because—
Mr Horam: That is consultancy in a way.
Chris Moxey: Yes, but it is not
on the scale of Pricewaterhouse, McKinsey or Deloitte. It is very
much attuned and akin to the work we do, and it is very likely
that we would like to see that advice move forward to secure the
business for the development of the solution and the implementation
of the service.
Q49 Mr Horam: Forget the McKinsey
analogy, but providing that kind of consultancy to non-FCO people
could be an area of expansion for you.
Chris Moxey: If we had the capacity
within our work agenda, perhaps over time we might be able to
consider that, but at the moment we are focusing on growing the
business.
Q50 Mr Horam: I understand, but
if you did pursue that sort of consulting work and were giving
advice to other people based on your understanding of FCO-type
security, would that have security implication for the Foreign
Office?
Chris Moxey: Again, I can only
draw heavily on the essential chemistry, understanding and respect
that needs to be in place for the nature of the partnership that
we have with the FCO. We are not a separate entity sailing off
into the blue water with our own agenda, free to do as we like.
We are working very closely with the FCO in meeting its strategic
priorities, and it understands what we are trying to do. There
is quite a close cohesion between us in the type of work that
we are considering and a clear understanding about the environments
and aspects of work opportunity that might be inappropriate to
explore.
Q51 Chairman: May I ask you about
your actual performance over the last year? Your accounts explain
that you are a people-based organisation with a disproportionately
small asset base, relative to turnover. Last year you achieved
a return on capital employed of 90%, which is very high, as the
target was only 3.8%. Was your target unrealistically low and
should you set higher targets in the future, or was that a remarkable
one-off circumstance that will not be repeated?
Chris Moxey: Again, I shall answer
the question in the round, if I may. It is important that any
business is set, by Ministers, an appropriate balance scorecard
of targets that reflect the nature of the operation and the strategic
ambition. That is why this year you will see that we have targets
associated with our financial performance, the health of our customer
relationships, the efficiency of our people and our growth in
wider markets. There is one target, however, that remains constant
for all Executive Agencies and Trading Funds: the return on capital
employed. That requirement is set by the Treasury, and we wholly
understand that it wants a common denominator to be in place across
all such organisations operating in the public sector. Unfortunately
for us, we are not asset rich and do not have the asset structure
that would drive out the most sensible outcomes in response to
that calculation. We are a people-based operation, so that is
not entirely the best measure for us. I hope that that covers
the question.
Q52 Chairman: It covers it, but
it does not explain why the figure is 90%.
Chris Moxey: Okay, may I look
to my colleague, Clive Heaphy, to expand?
Clive Heaphy: The figure is calculated
on an average of the balance sheet over the course of the year,
and that average brings out the 90%. Indeed, it was 43% in the
previous year. It is a function of the fact that the asset values
are very low on the balance sheet. When you compare that with
the margin that we achieve as a business, which is 6.6%, it is
a reasonable margin for any business with a turnover such as ours
and for a service industry. That 90% figure is purely an arithmetic
function of the fact that the balance sheet is very low. We do
not own any accommodation or IT assets, as those are effectively
rented through the Foreign Office.
Q53 Chairman: So, you could say—you
probably would not, because it would not be wise—that the
Treasury's figures are completely unrealistic for an organisation
such as yours.
Clive Heaphy: They are bound up
with the cost of capital calculation across the whole public sector.
The cost of capital calculation is 3.5%, so a shift in the calculation
for us could have implications for the rest of the public sector.
Q54 Chairman: Does that meant
that the rest of the FCO has greater difficulty meeting the Treasury
target since you became the Trading Fund?
Clive Heaphy: I do not see why
that should be the case, but perhaps Keith might want to comment
on that.
Keith Luck: The target does not
apply in the same way to Departments, only to Trading Funds. As
you say, Chairman, that is a minimum established by the Treasury.
Q55 Chairman: I see. Can I ask
you about your current targets? You mentioned some of them, Mr
Moxey. Why is the target for a surplus in the current financial
year only £1.3 million?
Chris Moxey: This reflects the
work that we have done together with our stakeholder, the board
of the FCO, and the work that our board has done in being precise
about our corporate plan and projections for the next five years.
In all of that, there is a clear understanding about the efficiencies
that we need to create and the cash value that we need to generate
for the Office. All of that is finely balanced, as it were, against
the equation of having a sustainable, strong operation, which
is able to trade and succeed in the future. The target may appear
relatively low to you—I suggest, at circa £1.3 million,
it is relative to that at which we traded last year. However,
the circumstances are changing as we become a Trading Fund rather
than an Executive Agency. We are having to absorb the inflation
associated with all our people and whatever payroll outcome may
arise through negotiation during the course of the year. We are
having to absorb the costs of inflation in all of the materials
that we procure and that form part of our delivery. We also need
to pay the interest associated with our working capital and public
dividend capital arrangements—the vesting day loan, more
precisely. We are having to start repaying that through our debt
obligations to the Foreign Office. So, gradually, we shall see
larger amounts of money start to move out of our books and real
cash going into the hands of the FCO. There is going to be considerable
pressure on the head room that we have enjoyed in the past.
Q56 Chairman: Associated with
that, you also had a target last year—you have one this
year—about customer satisfaction. The target was 85% satisfied
or very satisfied. You got 84% last year. What areas are your
customers not satisfied with?
Chris Moxey: I like to give good
news if I can. There is good news in a variety of areas. Only
two years ago—before getting to the areas of improvement—customer
satisfaction was sitting at only 74%. It reflects good and sustainable
progress to see for two years in a row an out-turn in the mid-80s.
That is highly encouraging, with improvement in things like ease
of use and the service delivery culture that our people present
to the customers with whom they work. To your question precisely,
the areas of improvement that we are focused on—indeed,
that we must focus on, as suggested by the customer survey quantitative
data—fundamentally fall in the areas of greater clarity
over the services that we provide and the information that we
offer about them. We are a large, widely spread organisation.
For some customers in the FCO, in different parts of the world,
it is not as clear as it could be how they might engage with us.
There is not the right kind of clarity over the services that
are on offer and how customers might get access to them. We need
to improve the quality of the information that we provide, which
has to do with how we respond with proposals for the work that
we wish to undertake with the Foreign Office, as well as how we
account for it—so, clarity over the information that we
give at the time of billing and being able to reconcile the one
important matter with the other, which are the proposal and the
invoice. There is quite a lot that we need to do in that area.
That will come about by improvements to the underlying enterprise
systems that we use. Perhaps not surprisingly, I think that every
organisation that we are talking about, suppliers of one kind
or another, will always have something to say about price. Can
we do it for less? Can we be cheaper? That is almost the clarion
cry. We have to work harder to help them see the value that they
get from drawing their services from us.
Q57 Chairman: May I ask you about
your staff—their satisfaction and dissatisfaction? It has
been quite a period of change for the staff. How do you assess
their satisfaction with the changes that you have gone through?
Chris Moxey: Objectively, we are
certainly reaching the minds of our staff community—we know
about this through quantitative surveys, as the Committee may
know—but it is plain that we need to do more to reach their
hearts and to help to bring greater salience to, and understanding
of, the journey that we are undertaking together. From a morale
perspective, the section of answers that relate to engagement
with our organisation, and staff understanding what we are trying
to do, shows encouraging progress. From our survey, we can see
that staff are engaged to a level of 61%, and that is up from
the tick-over 50% the previous year. There are two surveys going
on: our survey and the Foreign Office survey. It is really interesting
that in response to the engagement question in the FCO survey,
our staff are showing a level of engagement of 71%. The two things
combined and the number of people who are responding makes for
a very significant statistical sample. It is fair to say that
really good progress has been made. I suspect that there are shortcomings
that we need to address, but I will allow you to ask me about
that.
Chairman: I will bring in Mr Mackinlay
now and then come back with some more questions about that.
Q58 Andrew Mackinlay: I noticed
that the FCO Services has a human resources director and I thought,
"Why does it need one?" Listening to you, it seems that
the organisation's function is to provide services, so why are
you not providing the human resources management for the FCO?
It seems that if there is a raison d'etre for you folk, and you
have explained it this afternoon, it is to provide services. That
is one of the services in which you do not need to be a diplomat;
in fact, it is disastrous when diplomats do it. You ought to be
providing the human resources things, and I would like you to
comment on that. On one specific point, I cannot understand page
59, although I have read it again and again. Completely out of
the blue, there is a list featuring a Graham Smith, and I am trying
to find out who he is. You have volunteered the information that
he left under flexible early retirement. I was a bit surprised
by that because of data protection, but you put it in there. Who
is he and why is he in the report? What is special about Graham?
Chris Moxey: If I may, I will
answer the last question first. Graham Smith was a member of our
executive team—a member of the board—for the period
within the plan. He chose to take advantage of the early retirement
package that is on offer to individuals from time to time throughout
the FCO. By virtue of the position that he held at board level,
we were under an obligation to declare his remuneration arrangements.
He has moved on and that is where we are. Regarding the question
of whether we should take on responsibility for the FCO's human
resource function, it is a very interesting challenge. I suspect
that if I were even to think of venturing in that direction, my
earlier answer to the question, "Do you intend moving into
new markets outside of the realm of security?" would be under
scrutiny. Security is where we want to be, not human resource
management, so I am not looking to set up a shared services facility
on behalf of the FCO to provide such services to the FCO and elsewhere
in government. Our business is all around security, whether that
is IT, logistics or technical and environmental infrastructure.
Q59 Andrew Mackinlay: I am genuinely
surprised because human resources, particularly in this field,
touches on security, as we have seen. In the past, the Committee
has expressed concern about the stewardship and management of
human resources in the Foreign and Commonwealth Office, because
diplomats have headed it. We probably ought to raise it when we
have the Permanent Under-Secretary here. It seems logical for
you at least to aspire to having it outsourced to you.
Chris Moxey: I think that you
are possibly drawing me into commenting on the FCO's view of its
arrangements, which I am not really in a position to do.
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