Letter to the Chair of the Committee from
Simon Fraser CMG, Permanent Under-Secretary of State, Foreign
and Commonwealth Office
I am writing to update you on the latest FCO management
issues. This letter covers the period January to July 2010.
FCO PRIORITIES
In July, following a strategy review, Ministers and
the Board agreed with the Prime Minister a new set of priorities
for the FCO, as follows:
"Britain will pursue an active and activist
foreign policy, working with other countries and strengthening
the rules-based international system in support of our values
to:
- Safeguard Britain's national security
by countering terrorism and weapons proliferation, and working
to reduce conflict.
- Build Britain's prosperity
by increasing exports and investment, opening markets, ensuring
access to resources, and promoting sustainable global growth.
- Support British nationals around the world
through modern and efficient consular services".
The new priorities will form the basis of the FCO
future Activity Recording process. We are working to adjust processes
and systems to capture and cost staff activity against these new
priorities. We also developing an updated business planning system
to support implementation of these priorities.
FCO FINANCES
On 30 June the FCO 2009-10 Resource Accounts were
laid before Parliament. For the third year running the FCO was
the first major department to have laid its accounts. The FCO
managed its expenditure well during the year, resulting in an
underspend in our Resource Budget of less than 1% (£22.2
million). Against our HMT Capital Departmental Expenditure Limit
of £203 million our underspend was £3.7 million (1.8%).
The Government has said its most urgent priority
is to tackle the UK's record deficit in order to restore confidence
in our economy and support the recovery. As part of this, the
Chancellor announced that the government will save over £6
billion from spending during this financial year. The FCO family's
share of this cut is £55 million (including £5 million
capital); which represents around 2.5% of the departmental budget
(including the budget allocated to the British Council and BBC
World Service)
To live with this cut we have made savings from a
number of areas including general efficiencies, reduced consultancy
spend, savings on procurement, asset sales, reprioritisation and
other adjustments to the FCO overall spending. Additionally a
Ministerial-led review of our strategic programme activity identified
over £18 million of in-year savings. Details of these were
reported to Parliament in a Written Ministerial Statement on 29
June. (HC Deb, c37-8WS).
At the end of Qtr 1 we have identified and forecast
a number of additional pressures we will have to manage on top
of the cuts mentioned above. Nevertheless, we will rise to the
challenges presented by the Government strategy, and intend to
deliver a full spend this Financial Year within 1% of Parliamentary
Control Totals.
FIVE STAR
FINANCE
Between January and July 2010, we carried out the
work phase for 4.5* 'Far Flung Finance' to further improve how
we manage resources. This focused on mainstreaming good financial
management across the whole FCO. We successfully rolled out a
new and improved budgeting and reporting system (Hyperion/OBIEE)
to our overseas network. This is enabling improvements in the
FCO Board Key Performance Report so that the management information
can be built up on-line from the post level providing senior management
with greater assurance and to better support Board discussion
and decision-making. The NAO will assess the FCO's financial management
performance in the autumn. We will build on their recommendations
in planning the next phase of financial management transformation
in the FCO.
SPENDING REVIEW
On 8 June the government set out plans for this year's
Spending Review, and in July we submitted the FCO bid to the Treasury.
Our bid reflects the Foreign Secretary's belief that we must remain
an effective global organisation capable of promoting and protecting
our economic recovery and our national interests. He is equally
clear that the FCO must play its part in cutting expenditure and
delivering better value for money. We are now in discussion with
the Treasury. The outcome of the Spending Review will be announced
on 20 October.
EFFICIENCIES
The FCO overall results for the second year of CSR07
(financial year 2009-10) amounted to delivery of £148 million
efficiency savings, against the forecast at the start of 2009-10
of £136 million. Where we have exceeded efficiency targets,
the excess has been recycled to help us manage rising costs from
the fall in sterling's overseas purchasing power. During 2010-11,
we will continue to consolidate the work of the previous two years.
CORPORATE SERVICES
PROGRAMME
The Programme hit its 09/10 efficiency targets, saving
£4.6 million and releasing 224 slots, and is on track to
deliver £40 million of efficiencies by 11/12. The Programme
continues to drive simplification and savings from improved Prism
(ie Oracle) technology and the FCO's corporate functions, including
the Corporate Services Centre in Milton Keynes. Our project to
replace UK-based staff with talented local staff in some corporate
services roles overseas is progressing well—over 30 jobs
have been localised to date. And our project to outsource the
running of our buildings in selected posts in Asia Pacific is
now in the latter stages of the procurement process.
The FCO Board has asked the Programme to build upon
this success and to look for further savings in light of the drive
to cut public expenditure and deliver better value for money.
The Programme has therefore expanded its scope to include some
repatriation of corporate services processing activity overseas
to the Corporate Services Centre, more localisation of corporate
support jobs, reductions in the costs of the Central Units in
London, and cuts in directly employed residence staff, drivers
and support staff overseas.
ICT
Installation of our new IT System (F3G) is now complete
in the UK and at all but two overseas posts. FCO staff are now
realising the tangible business benefits of the new system such
as: improved mobile working options, greater collaboration between
colleagues enabling 'One Team' working, better information management
tools and a greener, more secure and stable IT system. We are
gathering positive case-studies from around the world and publicising
them on our internal FCONet website and in our monthly 'Wire'
newsletter. Focus is shifting to how Firecrest is working in practice
and delivering performance improvements.
TOP RISKS
REGISTER
The risk register was updated in March. No change
was made to the number of operational risks (Physical, Technical
and Personnel Security; Resources; IT Systems; and UKBA) or strategic
risks (Iran, Afghanistan, Pakistan, Terrorism, Middle East Instability,
Horn of Africa, Overseas Territories, Litigation and the Economic
Outlook). At the June update two further strategic risks were
added: Turkey and the EU. The FCO Board continues to discuss individual
risks in depth at its monthly meetings to make sure these risks
are being effectively managed.
UKBA
The FCO and UK Border Agency continue to work closely
together to deliver and communicate overseas the government's
migration policy, including the net migration limit and removals
of immigration offenders. This work is set against a backdrop
of efficiency savings and the impending outcome of the Spending
Review.
The current phase of the FCO-managed quadrilateral
(UKBA/FCO/DFID/Ministry of Justice) Returns and Reintegration
Fund comes to an end in March 2011. The Fund has made a significant
contribution to delivering Government targets for the return and
reintegration of failed asylum seekers and foreign national prisoners.
Funding for future years is dependent on the outcome of the Spending
Review.
The simplified mechanism for charging the Agency
for use of FCO resources resulted in early settlement of the cost
charge for 2010-11. Significant progress has been made on a joint
review of the overarching FCO and UK Border Agency Memorandum
of Understanding and Service Level Agreements on Human Resources,
IT and Finance which underpin our partnership. These have been
brought into one document with a view to improved planning and
delivery of the single global platform.
SERVICE LEVEL
AGREEMENT WITH
PARTNERS ACROSS
GOVERNMENT (PAGS)—RECOVERY
OF COSTS
FROM PAGS
ON OUR
NETWORK
The FCO Board decided to retain, for the rest of
this Comprehensive Spending Round period (CSR07), the existing
charging framework for Partners Across Govt (PAGs) who use our
platform. We have agreed and implemented a simplified charging
model with the UK Border Agency (UKBA), our biggest partner, to
provide budgetary certainty for both parties.
For other Departments, charges for central overhead
costs will remain capped at last year's levels for the rest of
this Financial Year. Work has begun on identifying how funding
for the overseas platform can be improved for the next Spending
Review (SR10) period (FYs 11/12-14/15) with a view to moving away
from the current charging framework. We are engaging with PAGs
and HMT to identify a more simplified charging framework to recover
costs that will reduce bureaucracy whilst ensuring that the FCO
is fairly compensated for the risks and contingent liabilities
it carries for others on the platform. This will also facilitate
work to improve the efficiency of the Government's wider use of
shared services.
FCO SERVICES
FCO Services, our Trading Fund, continues to focus
on meeting the challenge of doing more with less. They have responded
to the need for closer collaborative working with partners across
government in order to deliver the best possible value for money
and reduce costs for government as a whole.
I understand that you have received copies of their
Annual Report & Accounts for 2009-10 which set out how they
provided financial benefits by:
- keeping prices flat for the second year running;
- contributing a further £2 million savings
to help us meet our current Spending Review obligations;
- delivering ahead of plan a discretionary cash
dividend of £3 million;
- providing a statutory dividend of £450k;
- repaying with interest, £2 million of their
working capital loan; and
- making procurement savings of £3.45 million.
Customer satisfaction remains high on their agenda
and their improved performance has been demonstrated by an increase
in customer satisfaction by 2% since 2008-09. However, recognising
there is still more to be done, they are committed to working
closely with us to deliver an even better service in future.
Given the current economic climate and the need to
deliver greater public value, FCO Services is presenting opportunities
to facilitate government savings through seeking efficiencies
in secure services and by contributing towards the shared services
agenda across government. Evidence of this collaborative working
is highlighted in their performance where they report almost a
25% growth in wider market activity compared to the year before.
FCO Services set a prudent annual business plan for
2010-11 and we have agreed to the following six formal
performance targets, which they will report on in their Annual
Report and Accounts next year:
- An in-year surplus before interested and tax
of at least £4 million.
- A return on capital employed of at least 3.5%,
- Wider market revenue growth of 10% on that achieved
in 2009-10.
- A contribution to the FCO's current CSR commitments
by delivering £12 million of cumulative savings (over the
years 2008 to 2011).
- A utilisation rate for revenue earning staff
of at least 76%.
- A customer satisfaction rating of at least 85%
satisfied or very satisfied.
HUMAN RESOURCES
We have run a number of early departure schemes over
recent years to keep our workforce numbers in balance and in line
with our business needs. In Q4 2009-10 we ran a limited voluntary
early departure scheme in which 36 staff left the FCO. In July
2010 we launched another voluntary early departure scheme, which
is currently under way, under existing civil service compensation
scheme rules. All bids will be rigorously assessed against workforce
and business needs and value for money criteria, and staff selected
will be required under Cabinet Office rules to leave the FCO by
the end of October.
ESTATES
We continue to follow up and implement the previous
Public Accounts Committee's recommendations[5]
on our management of the FCO's global estate. In addition to the
steps set out in the Government's response to the Committee's
report[6]
published recently, we have:
- identified two external, professionally qualified
candidates to take up new posts as head of programme delivery
and head of asset management;
- further improved the management information collected
on our estates database (Pyramid) to bring it into line with central
government requirements for the civil estate;
- reminded all heads of mission of the importance
of accurate data entry, and re-started training for overseas staff
on its use;
- continued to improve our adherence to government
procurement rules.
The Committee will be aware of the flood at our Embassy
in Madrid in late January. We will inform the Committee of any
liability once any claims have been assessed and settlement reached.
Whilst we will be defending our position robustly to minimise
the FCO's exposure through our local loss adjuster, our financial
exposure to this issue may remain open for a number of years.
Following the successful refurbishment of the UKRep
building in Brussels last year we undertook a smaller scale refurbishment
of the UK delegation office at the Justus Lipsius (Council) building
which was completed to a high standard by FCO Services in January.
Our review of work to provide a new embassy in Damascus
concluded that the project to convert a former villa into offices
no longer represented good value for money, due to the Syrian
Government's change of policy on the location of their planned
new diplomatic quarter and to security issues at the site. We
accordingly cancelled the construction contract on 31st March.
We are in discussion with the Syrian Government concerning the
acquisition of a suitably sized and well located plot of land
on which to construct new, fit-for-purpose, premises.
The Moscow Residence was completed and occupied in
March 2010 for £13.8 million (although disputed claims from
the contractor are not finally settled).
A project to replace ageing, inefficient and potentially
unsafe chillers, cooling towers and associated plant and equipment
in the FCO Main Building is due for completion by end-September,
below the original cost estimate of £4.8 million.
I attach at Annex A our report for properties sold
and purchased in the second half of financial year 2009-10 and
first quarter of financial year 2010-11.
1 September 2010
SALES & PURCHASES REPORT—OCTOBER
2009 TO JUNE 2010
SALES
| Sale Date | Post
| Property Type | Sale Price £
|
| Oct-Dec 2009 | 17/02/2009 |
Abidjan | Office | 202,500
|
| 29/09/2009 | Gabarone
| Residential | 243,468 |
| 31/11/2009 | St Johns
| Residence | 268,178 |
| 15/10/2009 | Ottawa
| Residential | 196,056 |
| 30/10/2009 | Vientiane
| Residential | 1,219,680 |
| 03/11/2009 | Berne
| Residential | 1,315,860 |
| | |
| | |
| Jan-Mar 2010 | 12/01/2010 |
Almaty | Offices | 147,000
|
| 03/02/2010 | Dar es Salaam
| Amenity | 328,548 |
| 03/02/2010 | Dar es Salaam
| Residential | 392,502 |
| 26/02/2010 | Paris
| Residential | 322,514 |
| 03/03/2010 | Colombo
| Residential | 2,047,500 |
| 26/03/2010 | Paris
| Residential | 516,083 |
| 26/03/2010 | Paris
| Residential | 467,294 |
| | |
| | |
| Apr-Jun 2010 | 15/04/2010 |
The Hague | Residential | 309,260
|
PURCHASES
| Purchase Date |
Post | Property Type
| Purchase Price £ |
| Oct-Dec 2009 | No properties purchased in this period
|
| | |
| | |
| Jan-Mar 2010 | 15/03/2010 |
Canberra | Residential | 474,193
|
| 24/03/2010 | Canberra
| Residential | 474,193 |
| | |
| | |
| Apr-Jun 2010 | No properties purchased in this period
|
5
House of Commons Committee of Public Accounts: "Adapting
the Foreign and Commonwealth Office's global estate to the modern
world". Twenty-fifth Report of Session 2009-10, 1 April 2010. Back
6
"Treasury Minutes on the Tenth to the Eleventh and the Fourteenth
to the Thirty Second Reports from the Committee of Public Accounts
Session 2009-10", July 2010. Back
| 
