UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 715-iv

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Public Administration Select Committee

Good Governance: the Effective use of IT

Wednesday 23 March 2011

Craig Wilson and Howard Hughes

Evidence heard in Public Questions 342 - 476

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Public Administration Select Committee

on Wednesday 23 March 2011

Members present:

Mr Bernard Jenkin (Chair)

Nick de Bois

Robert Halfon

David Heyes

Kelvin Hopkins

Greg Mulholland

Lindsay Roy

________________

Examination of Witnesses

Witnesses: Craig Wilson, Managing Director, UK & Ireland, HP Enterprise Services, and Howard Hughes, VicePresident and General Manager for DWP, HP Enterprise Services, gave evidence.

Q342 Chair : May I thank you very much indeed for joining us today, and could I ask you to identify yourselves for the record?

Craig Wilson: I am Craig Wilson. I lead Hewlett Packard’s Enterprise Services business in the UK and Ireland.

Howard Hughes: I am Howard Hughes. I am the Account General Manager for Hewlett Packard for the Department for Work and Pensions.

Q343 Chair : Thank you very much indeed for coming today, and I congratulate you; you are the only major IT supplier to Government that has agreed to come before this Committee in public, which leaves us wondering about everybody’s motives, but yours are laudable, I am sure. May I start by asking if you can just briefly outline what contracts you currently hold with central Government?

Craig Wilson: There are lots of contracts but perhaps I can give you an idea of the main ones. There is a range of contracts in the Ministry of Defence, a major contract in the Department for Work and Pensions. The Foreign & Commonwealth Office is another client. Various secure parts of Government are other clients. The Prison Service is another client. We provide technology though, as distinct from services, to most departments and agencies, in some shape or form.

Q344 Chair : We are more interested in your business as a designer and implementer of systems, because that seems to be where the Government has the biggest problem. Anybody can buy a laptop, although the Government does seem to make that more expensive as well. Perhaps we should talk about that too. Your contracts tend to be exclusive in nature, don’t they? You tend to be a prime contractor.

Craig Wilson: We tend to be a prime contractor, but I would say, generally speaking, the days when departments had a single prime contractor to do everything for them are long gone. In fact, I cannot think of a single department that has not moved to some kind of multisupplier arrangement. That would certainly be the case in DWP.

Q345 Chair : You still have exclusivity over that part of the department’s work that you might be working on. For example, in DWP you have exclusivity over the area you are working on.

Craig Wilson: We might have exclusivity over operating aspects of the systems, but in terms of application development as an example, an important part of the inquiry, that is generally an open framework with several suppliers, and that is certainly the case in DWP and other large spending departments.

Q346 Chair : What is the advantage for the Government in giving you this exclusivity?

Craig Wilson: Usually those kinds of undertakings, where we are operating large amounts of infrastructure on behalf of departments, involve a considerable amount of investment on our part. If you take the building of a very large data centre to operate these services as an example, that might cost in the order of £100 million, and you have to have a certain degree of exclusivity to offset that investment over the lifetime of the arrangement of the contract with the department.

Q347 Chair : We are going to come to agile development, cloud computing and other things later, but it is all a bit circular, isn’t it? You are paid to have the idea to build a big data centre and it is a very big project, and therefore you have to have exclusivity to make it worthwhile for you to bid for the contract. That is basically it, isn’t it? Is it a bit circular?

Craig Wilson: No, not at all-only for that piece. The exclusivity is typically where there is a significant upfront investment involved. In those areas, in all of the contracts with the big spending departments today, where it is really important to have a range of different suppliers, all of those departments have multisupplier arrangements in place. It is very rare these days where there is exclusivity on the development of contracts.

The other thing of course, and in fact you touched on this, Chairman, is that sitting behind these prime contractors are a lot of other suppliers, and all of those pieces are aggregated by the prime supplier. Perhaps we can come on to that.

Q348 Chair : We will come on to suppliers later on. Once you have exclusivity over a contract, you do have the first bite of the cherry, don’t you, for future development of work or if that project becomes more problematic? Nobody else gets a look in, do they?

Howard Hughes: It is worth reiterating a point Craig made, Mr Chairman. In the applications development space, where you would traditionally have numerous small to mediumsized projects rather than one large project, most of the central Government departments have more than one supplier in a multisupplier environment. The Department for Work and Pensions and the Ministry of Defence are two examples, of which I have personal knowledge, where there is not one large contract doing applications development.

Q349 Chair : But you are all the same kind of supplier. We are going to come on to how few suppliers there are, and you have just consolidated two of the larger ones; EDS has been taken over by Hewlett Packard. The way the Government behaves seems to drive out competition in the industry.

Craig Wilson: We will come on to talk a lot about the way in which the SMEs form part of the delivery to individual departments. Would you like me to cover that now?

Q350 Chair : What I am interested in is how it benefits Government to give these exclusive contracts.

Craig Wilson: There are two aspects to that. One I have already mentioned, which is the offsetting of the investment, because we have to recoup big investment at the front of these contracts over the lifetime of the contract.

The other point is that, if you take any of the large undertakings-big systems that the Government is seeking to build-there could be scores or even in some cases hundreds of different suppliers that are part of that value chain to deliver that project. The prime is usually taking the risk of joining all of those pieces together. The alternative would be that that risk is held by the departments and, generally speaking, departments are not well equipped to integrate all of those components. By the way, I would add that this is not unusual. If you think about our contracts with the largest corporate organisations, they are very similar, for the same reasons.

Q351 Chair : What proportion of your business is central Government?

Craig Wilson: A large proportion is.

Q352 Chair : What proportion is it?

Craig Wilson: About half of our services business is with Government.

Q353 Chair : How do margins compare for Government business with other business?

Craig Wilson: Broadly speaking, margins are comparable. As it turns out-

Q354 Chair : Broadly speaking?

Craig Wilson: Yes; I will come to the specific point. As it turns out, our aggregate margin in our Government business is slightly lower than it is in our private-sector business in the UK.

Q355 Chair : Can you give us the figures on that?

Craig Wilson: I cannot because, as you will appreciate, we are a public company, so I can only report figures for the corporation as a whole. What I can say is that we have shared that with OGC and the Cabinet Office, and they are satisfied that we are not making an unusual or excess profit on Government contracts.

Q356 Chair : Do you work out roughly what margins your competitors are making on their projects?

Craig Wilson: In competition with our competitors, we are always trying to work out how much money our competitors are making to see if there are ways that we can offer clients savings.

Q357 Chair : Is there any reason why the Government should not just make it policy to publish prices, and put in the contracts that you should publish your margins? Is there any reason why we should not do that?

Craig Wilson: Two things: first of all the Cabinet Office is moving, as you know, to a framework where the pricing to Government clients is open and is to be shared openly, so everybody can see that. We would support that approach. In terms of reporting the profit on individual projects, then we are as a public company governed in what we can and cannot share publicly by, in this case, SEC guidelines on what an American corporation can say locally versus globally.

Q358 Chair : I suspect the transparency of American contracts is a little more open than what happens in the United Kingdom.

Craig Wilson: Yes, that is true and I think that is something that is worth looking at. That is a difference.

Q359 Chair : I have spent several years on the Defence Committee. We get information about defence contracts that is impossible to find for the information technology sector, and yet we are confronted with a Government that procures projects that run over time and budget, time and time again, and then do not work. A business like yours has half of its business with the Government and seems to make very nice margins out of it. It seems to be a very unsatisfactory relationship.

Craig Wilson: As I have said, the margins are comparable with our private-sector business and are slightly better in our private-sector business.

Q360 Chair : How does your performance compare with the private sector? Do you have the same complexities, cost overruns and time overruns with the private-sector clients as you do with the Government?

Craig Wilson: I suspected we would get that question, so yesterday I did take a look at our project database, so a realtime snapshot of projects that we have running at the moment. To share those numbers, in the UK we-Hewlett Packard-have 204 significant projects that are running. Of those, 24 of the 204 are for public sector. It turned out the percentage of those that are on track in terms of their performance to time and quality in the public sector is about 88%. As it turned out, in private-sector projects, the majority of them-180 projects-it was 84%. If we look at our own evidence, over hundreds and, over the period, thousands of projects, we cannot see any evidence that there is a worse overall performance in the public sector relative to the private sector. We would be happy to send you a note on that.

Q361 Chair : Typically how long are these contracts? What are the terms of these contracts?

Craig Wilson: It varies, but I have to say, generally speaking, the overall term of IT contracts is getting shorter, as a global trend. It is also the case in Government that contracts are getting shorter. Generally speaking, the length of the contract is also a function of the amount of investment at the front-end. If a lot of investment is put in, then sometimes departments allow a longer time for the supplier to recoup these investments, but it is quite typical today that those kinds of arrangements are fiveyear arrangements. On the frameworks for application development, they can often be shorter. That might be a two or threeyear contract.

Q362 Nick de Bois: Of your contracts that you have-and there are two questions here-in the public sector compared with the private sector, how much contract mission creep, growth, added value are you earning once the contracts have been put in place through variations to orders, changes or problems you may come across that therefore increase the value of the contract to you and would perhaps point to potential poor briefing or possibly poor estimating from either side? The second part of my question is: how do they compare, public versus private?

Craig Wilson: I do not have those particular data in my head, but I can tell you anecdotally what I think, and I think that it is true that, in Government contracts generally, there is more, as you have described it, scope creep. Part of it is because of the nature of what Government does, but it is true that, generally speaking, there is more change through the lifetime of the contract.

Q363 Nick de Bois: As a proportion of your business-and when I ran a business we could look at a client contract and make estimates of how much extra value would come out of that, as a result of changes, specification or whatever-can you establish a norm? Is it 10%, 20% or 30% or are they greater? In other words, are we committing to one contract and paying a lot more, for whatever reason?

Craig Wilson: This is what I feel. My judgment is that it would be of the order of 20% or 30% over the lifetime of a contract.

Q364 Nick de Bois: Regardless of the length of time, do you think?

Howard Hughes: No.

Craig Wilson: No, the developmenttype projects are subject to that kind of change. By the way, the way that Government and the private sector seek to control that kind of issue is that there is only a short period of what is considered time and materials at the beginning of these projects. At some point when the requirements are fixed, the suppliers generally then have to move to a fixedprice arrangement. There is then the allowance to charge if there were late changes to the requirements. Sometimes it is the case with Government projects that there are necessarily late changes to requirements.

Q365 Nick de Bois: Fixed price is interesting. Is that fixed total price or fixed hourly rate prices for consultancy and so forth? In other words, is it a fixed price or a movable fixed price?

Craig Wilson: It is both. Generally speaking, all of these frameworks have the underlying fixedprice components that you are talking about. There is a fixed rate card; there is an agreement of how productivity improves that rate card over the lifetime of the contract; and then, in addition, most departments will seek an overall fixed price for a particular project that-

Nick de Bois: Makes sense.

Howard Hughes: In applications development, as an example, over the life of a project you might have three or four milestones that have fixed prices attached, and then the framework agreement behind that could be, as you suggested, a time and materials type of framework to deal with change.

Q366 Nick de Bois: Is it fair to say that your planned margin is greater on that work than it is on your original contract?

Craig Wilson: There is a difference in the margin between the infrastructuretype work, where you are operating a data centre, and project services, where you are doing a particular oneoff project. That is the main distinction. The distinction is not between the pricing that we apply to changes.

Q367 Nick de Bois: So your margin is the same, broadly speaking?

Craig Wilson: For the same type of work.

Nick de Bois: Alright, thank you.

Howard Hughes: Just a final point: the rate card tends to be what the industry calls "blended", which is a mixture of different types of grades and different types of skills. It is not uncommon on certain rate cards for us to make significantly lower margins, less profit, on certain rates than we would on other rates. Your question is: are we making more on time and materials? No, not always.

Q368 Chair : Just two or three very little supplementaries: if you are operating a data system for a Government department, and then you are asked to quote for an application development relating to that system, doesn’t that present you with a bit of a conflict of interest?

Craig Wilson: I am not sure why it would.

Q369 Chair : For a start, you might have an unfair advantage as a bidder, because you know more about it; you have more inside information about the system you are going to be developing the application for. Secondly, we all know what consultants do, don’t we? When they are asked a simple question, they say, "I will call you back," and then work out how to make it seem more complicated than it actually is. That is what consultants do, isn’t it?

Craig Wilson: Not generally, because when it starts to get more complicated, it gets a lot more difficult to deliver as well.

Chair : Goodie, that means more hours.

Craig Wilson: Not always, particularly if it is a fixedprice contract. Our interest is in making it as simple, straightforward and standard as we possibly can.

Q370 Chair : Coming back to this question about cost and time overruns compared with the private sector, how do you measure that and factor in the changes in specification that can be added in by the client, which I suspect happens much more in Government than in the private sector?

Craig Wilson: What you generally do is based on a set of requirements, and what you are trying to do is get them as fixed and stable as you possibly can at the outset. We estimate the cost of delivering that project, and we put a small amount of contingency into that. Typically in Government contracts, by the way, the amount of contingency is transparent, so the Government knows how much we are adding to those contracts. A certain amount of change is catered for within the fixed price. If late in the project there is a significant change in policy, for example, which as you will appreciate does happen, then we have to cost that and go to the relevant department with an estimate of that. They can challenge that estimate based on the underlying cost principles that have already been established.

Q371 Chair : We all know the Civil Service is very riskaverse, particularly when spending public money, which paradoxically makes things more expensive, but do they tend to overspecify projects and overspecify the detail of projects, in order to try to minimise the risk?

Craig Wilson: I think that is a particularly good question and, generally speaking, you would hear this referred to as goldplating. There is a tendency to overspecify things, but what I would say, though, is that that is changing quite considerably.

Q372 Chair : That is your job as a good contractor: to tell them not to overspecify.

Craig Wilson: That is right, because in our discussions with Cabinet Office when we have gone into this detail, they have said, "Some of these things appear to be very expensive. What is driving that expense; is it because you are making a premium profit?" What has transpired is that no, actually what is driving the cost are the goldplating requirements, which are not necessarily required.

A very good example is to do with the overclassification of information. This is the lazy assumption that, for a particular community, every piece of information they deal with has to be classified at a level of secrecy that is higher than is necessary. As it goes higher and higher, that information is more expensive to secure. That is just one example. I really do think that most Departments are getting better and better at identifying those areas.

Q373 Lindsay Roy: What are the main reasons for project changes? Are prices negotiated? Is there not then an undue dependency culture on behalf of Government, due to the expertise of the contractor?

Craig Wilson: There are obviously lots of reasons why late changes can-

Q374 Lindsay Roy: Can you give us the main ones?

Craig Wilson: The main one is to do with the nature of legislation. If you take the passage of a significant piece of legislation, from the point of policy development all the way to the point at which that policy goes live, first of all you will know that departments cannot legally start to spend at any significant level on the development of the systems until the legislation has achieved royal assent. What may well happen is a situation where, in the overall lifecycle for a piece of legislation, the business changes in the department and the IT changes are concertinaed into less than 50% of the overall elapsed time.

Q375 Lindsay Roy: It is Government induced, in other words.

Craig Wilson: It is a function of the way that legislation is often developed. Then, as you will know better than I do, late changes can still creep in, either because of changes in the legislation or many of those provisions are in terms of secondary powers, and the details around those often emerge late in the process, but often for very good reasons. This is not just a failure in terms of the upfront work; some of these are clear why these late changes have arrived.

Howard Hughes: If I were to have a go at the second one, it is around dependency management. It is rare in a department in a programme to have the application, infrastructure, network, data and people change all delivered by one programme under the authority of one department. There are generally some dependencies on another Government department’s data, maybe a piece of legislation that needs to change or a technology upgrade in another programme on another contract. Government has recognised this and it is embedding it in some of its new programmes. At the start, there is the case for the rigour around dependency management between Government departments and empowerment of the SRO from the start to be able to say, "This is the totality of my programme, including those dependencies. I must drive that." That would be my second reason for change.

Craig Wilson: Of course the nature of most of the difficult problems you are dealing with as legislators is that they are crosscutting. Whether we are talking about social inclusion, whether we are talking about any other part of the legislative agenda, it is very rare that the full responsibility of dealing with that issue falls to a single department. Increasingly these provisions, whether it is mental health or any provision, are crosscutting, so the dependencies are increasing, just by the nature of the problems you are dealing with.

Lindsay Roy: We will come on to the dependency on the expertise of the companies later on.

Q376 Chair : Thank you very much. Before we move on, can I just place on record an informal declaration of interest: the coChairman of Fujitsu Telecommunications Europe is a longstanding personal friend of the family? I just wanted to make that clear. Can you just give very brief examples of a particularly successful project you are very pleased with?

Craig Wilson: First of all, and I know that Sir Ian Magee mentioned this in his evidence to you, there is a very good NAO report cited on that subject, and a number of the projects that are highlighted in that report are projects that we have played a part in.

Chair : Is this the 2006 report?

Craig Wilson: That is right. An example that I would identify within that report would be payment modernisation, which I think everybody agrees worked well and had the potential to be a disaster for many of your constituents. That was handled very well indeed.

Q377 Chair : You know what the next question is going to be. What about JPA, for example, the payroll system in the Ministry of Defence?

Craig Wilson: Yes, the Joint Personnel Administration system. First of all, before JPA existed, the Ministry of Defence had literally hundreds of disparate personnel systems, so one of the things that drove JPA, particularly in periods when we were mobilising forces across the country, was that it was important to know what people were trained up in, how they were being paid and to make sure all that was correct. That was the original driver of JPA. I think, although it is not my area in HP, that the overall savings for JPA have been achieved and are considerable.

Q378 Chair : That was the intention of the project and its justification, and indeed the utility of being able to transfer people across different services, but this project was not a success; it ran over budget and it ran over time. What were the factors that made it run over budget and run over time?

Howard Hughes: I am a few years’ out of date but, as an exserving officer in the military and a member of the company that delivered it, EDS, firstly I think it is a great example of trying to conduct business change and technology change at the same time. Hundreds of years of armed forces administrative rules and regulations, people change, what was delegated where in the organisation, where cash was held-was it held in a subunit or a major unit-changing at the same time as the IT.

Q379 Chair : Wasn’t that your job as contractor to understand that problem and to inform the Government about the risks and build that into the price, rather than discover that halfway through the project, which seems to have been what happened? It is like people say, "I am late for work because there was frost on my car." Well, in the winter you do get frost on your car.

Howard Hughes: I think we can build in the IT component of that, and you are right to hold companies to account for that. I think we can say that there was a risk of business change and we will be held to account for the IT cost as part of that. I do not think we can be held to account for delivering the business change in the overall cost of the programme.

Q380 Chair : Did you lose some money on that contract because it ran over budget and ran over time?

Howard Hughes: I do not have the details of that.

Q381 Chair : Would you expect to lose money on a project like that?

Howard Hughes: Where we had committed to deliver something and the scope of our work was very clear and we failed to deliver against that scope, then I would expect not to be paid. We have a large number of paymentforperformance contracts with Government where, when we do not perform, we do not get paid.

Q382 Chair : You still make-

Howard Hughes: No, we may not.

Q383 Chair : You may not?

Howard Hughes: No, we may not, if the scope of what we are delivering is clear and we fail to deliver against it. A large number of our contracts are very clearly paymentforperformance, and we would not get paid in that instance.

Q384 Chair : Are you still managing that system, JPA?

Howard Hughes: We are, yes.

Q385 Robert Halfon: In your evidence, you say that the current financial models that align funding to specific policy initiatives often result in Government paying more than it should for underutilised IT assets. Can you just expand on this?

Craig Wilson: Yes, absolutely, because I think this is a key point. Generally, if you look at the cost of Government IT and where that spending gets approved, it is to do with the spending submissions of individual Departments, and the spending generally arrives along with the legislation that it is intended to support. For example, part of the cost of Universal Credit would be the delivery of the IT systems to support the Universal Credit. If you magnify that out across the whole of Government, it begs the obvious question: where is the spending to buy the common things in a uniform, lowcost and efficient way? An illustration of this is that, as a result of the way generally Government deals with this question, things that most people would expect to be truly common, like the use of data centres, networks and types of desktop systems, where in a big corporation those would be bought once, bought very efficiently and then shared across the piece, are in Government bought separately by departments, generally speaking.

As a result, if you stand back from the whole picture it looks a bit like a patchwork quilt. I think the Cabinet Office is absolutely on to this point, and the phrase that the Cabinet Office Minister uses-and I know that he has used this phrase in evidence in other inquiries that you are involved in-is "tightloose controls". He is getting to the same point. This is about being selective about those things that should be common across Government, because the variation is redundant and Government is otherwise paying a premium price for those, and, on the other hand, those things that should necessarily be led by individual departments along with their individual accounting responsibilities for the policy.

Q386 Robert Halfon: Is there a time lag between the announcement of a policy, procurement of an IT contract and the implementation of that policy so that, by the time the implementation has happened, the technology is out of date, even though the technology might have been signed up to?

Craig Wilson: It may not be out of date, because we would not recommend that Government should be on, if you like, the leading edge of technology all the time. That is just not appropriate for most of what Government does. What is the case-and I made this point before-is that, by the nature of things, you are quite right that procurement is sometimes delayed, or at least the point at which departments can begin to spend to develop the IT is delayed by law in some cases. The result is things are concertinaed at the end of the projects.

Q387 Robert Halfon: I am thinking of the airwave system, which some of the police use, where it seems that, by the time it had all got through and was implemented, it was clearly outdated in terms of mobile communications. Does this not happen across Government IT projects in general?

Craig Wilson: I would not say that was a general problem across Government IT projects.

Howard Hughes: If you were to go back 20 years ago, IT procurement times and the nature of the technology industry were out of step to a degree, and you were procuring, as an example, greenscreen early-1980s technology just as modern late-1980s technology was coming out. People were getting a terminal on their desk and wondering why it was 10yearold technology. I am struggling to see where we are seeing that now. I think they are much more in step. I would just come back to the earlier point Craig made: on behalf of the supplier community, we do not want to deliver islands of infrastructure to different Government departments with the same requirement. If you imagine the architecture in your head, the infrastructure components and the network are at the lower end, and the business processes and the apps are at the top. You have recognised it, and we are all quite excited about the thought of being able to build one thing once and use it many times. That opportunity is there and is ready to be seized.

Q388 Robert Halfon: Do you think it is realistic to expect Government spending to be decoupled from policy initiatives?

Craig Wilson: What can happen now, and this is the route that is advocated in the System Error report-which incidentally we think was an excellent report-and is also the direction that we think the Cabinet Office has already set off on, is that at the centre it is possible to be far more prescriptive over certain aspects, so the freedom that individual departments have to go and choose their own hosting, network and desktops should be limited, because it is difficult to see why their requirements would be noticeably different from another department’s. That is the identification of common standards across Government.

There is then of course the question: once we have identified those common pieces-this is to your question about spending-how do we then get those assets built? What is advocated in the System Error report I think is right and it is the direction lots of other Governments have gone down, which is that, for each common piece, you identify a lead department and procure those assets in a way that can provide a service more generally across Government. By the way, this is not theoretical; this is a direction that the previous Government had started down. It is one that has renewed energy with the change in Government, and there are already some examples. A great example would be something like Desktop 21, which is a commonstandard for desktop services, which was originally procured through DWP but also has a more general application across Government.

Q389 Robert Halfon: Just finally, how easy is it to update the technology, given policy lags and implementation, without it causing the taxpayer huge amounts more than the original contract?

Craig Wilson: Generally speaking, across IT, whether public or private sector, we are getting better and better at decoupling those two things. An application built for a particular purpose can easily move from outdated technology to newer technology, so generally speaking it is getting easier. However, it is still the case that quite a lot of Government legacy systems, these very complex transactional systems, are very closely coupled to the technology that sits underneath them, simply because many of them have been built up over many years. If you take something like Jobseeker’s Allowance or income support computer systems, the first parts of those systems were built in the late 1980s. If you look at some of the newer systems, with newer approaches, those things are more clearly separated out in the way the systems are built.

Q390 Chair : Moving on to this question of suppliers, how many suppliers does Hewlett Packard/EDS have?

Craig Wilson: I will answer globally, for the UK, and then for Government. Across the world, HP has of the order of 160,000 different SME partners that we work with, and we think that is the largest SME community of any supplier in the world. In the UK, we work with around 8,000 SME suppliers, and our business is incredibly dependent on that SME community. That is the first point.

The second point is that, if you want to work with a company like Hewlett Packard, there is a programme that SMEs can join, the Developer & Solution Partner programme. In the UK, there are 570 firms that are part of that programme. If we turn to Government then, in every one of our big Government contracts, we would have a coterie of SME partners supporting delivery to a particular Department. If you take as one example defence and security, we have over 300 partners that work with us in that space. In DWP, I think it is just over 200. You heard evidence yesterday from the CIO of HMRC, where I think he said they have 240 SME partners.

Q391 Chair : There is obviously great advantage to your business from employing very large numbers of SMEs.

Craig Wilson: Absolutely; it is symbiotic.

Q392 Chair : Is it not ironic then that, for Government itself, we are reliably told that 80% of systems integration business is run through 18 suppliers? In fact, anecdotally we are told that 60% goes through three suppliers. That puts the Government in a pretty disadvantageous position, wouldn’t you say?

Craig Wilson: We thought that question might come up, so we did-

Chair : You started answering the SME question, but actually I was asking the other one.

Craig Wilson: Let me answer the other one. We did look at this; we looked at the industry data that is available of the concentration in public sector in the UK, relative to other countries that we would compare ourselves with. If I could just refer to my notes, this will perhaps help. In the study, which is a PAC study-not Public Accounts Committee, but Pierre Audoin Consultants, which is an industry analyst body-the average across countries, in public sector not across the whole, so it is specific to public sector, was that just over 57% of the total spend is concentrated in the top10 suppliers. That is the average. In the UK, that concentration is slightly below average; it is 56.7%.

Q393 Chair : It does depend what you are measuring. We are looking at systems integrators.

Craig Wilson: This is the concentration of service integrator spending in public sector, measured country to country.

Q394 Chair : You do not accept that the sector has become overconcentrated.

Craig Wilson: No, there is simply no data to support that. I will give you some examples. In the Netherlands, the same ratio is 87.9%. In Italy it is 64.1%.

Q395 Chair : With how many?

Craig Wilson: This is the concentration; this is the percentage of public sector spending that goes towards the top10 suppliers to Government. This is answering the point about concentration. France is slightly better than the UK in this regard, at 53%. I think you can see there is not huge variation. Certainly the UK stands positive in comparison with those countries.

Q396 Chair : Some witnesses have described the present arrangements as a cartel; there are too few suppliers, it is all too cosy and you all operate in the same way. You encourage the customer to operate in the same way and, therefore, you have effectively a protected market.

Craig Wilson: If they think it is a cartel, I would be interested in seeing the evidence for that, because I cannot find any. Can I give you another piece of information?

Q397 Chair : There never is evidence.

Craig Wilson: Here is another piece of real evidence. Last year-we looked this up-I am told that there were over 700 contract award notices through public procurement in the UK. This is public procurement for these kinds of projects. Those awards were made to some 460 different companies, so that does not sound to me like a cartel.

Q398 Robert Halfon: Don’t you think it is unhealthy that you have so much of so many tentacles in so many different Government departments? Going back to this figure of 80% of central Government IT work done by just 18 suppliers, don’t you think that is unhealthy?

Craig Wilson: I think just over half is by the top 10.

Q399 Chair : Would you object to more open benchmarking?

Craig Wilson: No, absolutely. This is something that is absolutely worth looking at. You have already mentioned, Chairman, that in some other countries, particularly the US, there is more transparency around this, so one way in which the UK could perhaps think about this is that, when it is letting some of these larger contracts, one of the criteria upon which you could select suppliers is the degree to which they are going to involve the SME community in the delivery of those contracts.

Q400 Chair : We will come to SMEs in a minute but, in terms of benchmarking your own costs and margins against comparators, there might be two suppliers competing for one contract, both of them already involved with the Department. It feels like a bit of a closed shop in those circumstances, doesn’t it? Isn’t there a case, as I think you are saying, for much more transparency, open benchmarking and openness about margins?

Craig Wilson: There is a case for that. In the confines of a particular competition, the procuring authority does have access to that information, and it does compare bidders on precisely that basis. Generally speaking though, if you are talking about multiplicity of supply and the way in which we support that, that is not generally one of the criteria for selection. To your point, that is an area where more can be done.

Q401 Chair : You must be acutely aware how much more expensive unit costs in central Government are, for example, than in local Government. That was recently highlighted within a document published by the Network for the PostBureaucratic Age. Why do you think a workstation in local Government costs only half what it costs in central Government? Whose fault is that?

Craig Wilson: I can only speak for our contracts and that is not the case in our contracts.

Q402 Chair : Would you like to send us the figures?

Craig Wilson: We could send you a note on that, indeed. What I would say is that, if you look at the newer frameworks in central Government, and Desktop 21 is an example I have already mentioned, that is certainly not the case. I would add that, in Desktop 21, Government has looked very hard at making best use of newer technologies to deliver some step changes in the cost of those systems.

Q403 Robert Halfon: When you are active in five major departments and you have such a central role, going back to my question, do you not think it is a little unhealthy for one company to have such a huge influence across Government? Does it not crowd out other suppliers and smaller companies?

Chair : Isn’t that your intention, because you want the business?

Craig Wilson: Of course we want the business. Two points: first of all, there probably is a point at which that becomes unhealthy, but we are a long way from that. The evidence does not support the argument that this market is overly concentrated-far from it.

Q404 Robert Halfon: What is the point, as far as you are concerned, that it becomes unhealthy for one contractor to have so much influence?

Craig Wilson: The point at which it becomes an oligopoly, which it clearly is not.

Q405 Robert Halfon: That is what it is in essence, because you are the largest supplier of IT services; you are in five Departments. In essence, you are an oligopoly in all but name.

Chair : The contracts that are being let must very much reflect your influence, operating philosophy, the systems you have already installed and the way that you have interacted with personnel in Government departments, so it becomes an introverted process.

Craig Wilson: If the evidence supported that, there would be a point there but, if we go back to the contract award notices that I mentioned-over 700 in 2010-I think Hewlett Packard won four of them, so that does not sound like a collusory cartel.

Q406 Robert Halfon: You are big in five departments and you are the largest supplier of IT services to the Government. That makes you pretty much an oligopoly.

Craig Wilson: To be clear, to take all of those departments you mentioned-and DWP might be something of an exception here, because we are a major supplier to DWP-we are one supplier alongside many. It is not that we are providing all the IT.

Robert Halfon: You are the largest supplier.

Chair : What about the value of these contracts?

Craig Wilson: If you put it all together, we happen to be the largest supplier to Government and there are lots of large suppliers.

Q407 Chair : Are the figures you have been giving us about number of contracts or about value? Were those international comparisons about percentage of value of contracts or about numbers?

Craig Wilson: That was value.

Q408 Nick de Bois: Could we turn to SMEs, which I think you were keen to talk about anyway, judging by your references to them? Again, let me just reiterate in many ways how pleased I am that, as a business, you have come here to this meeting, but I hope you will understand I want to dig a bit into SMEs. Can I just start by a broadbrush question: of Government contracts, what percentage of those contracts are actually subcontracted to or engage with SMEs?

Craig Wilson: Of the Government ones, all of the contracts will have some SME content and, for the larger ones, that could be literally hundreds of SMEs that are part of that undertaking and value system. In terms of overall spend, if you look at the amount of pounds spent with HP and how much of that goes through to those SMEs, it is just over 30% of the total that goes through to our partners.

Q409 Nick de Bois: So 30% of our prime contract spend is going down to SMEs?

Craig Wilson: Going to partners-SMEs and in some cases some larger partners.

Q410 Nick de Bois: Could I check with you what HP defines as an SME? Are you just going on the standard definition?

Craig Wilson: In that definition, I think we were using the HMRC definition, which is revenue less than £6 million and number of employees fewer than 50.

Nick de Bois: That is what we are talking about here.

Craig Wilson: Just to be clear: the total was for all partners. The proportion that goes to the small companies that meet that definition is somewhat smaller, but it is still significant.

Q411 Nick de Bois: That is all partners on a Government contract, so not just HP’s.

Craig Wilson: Correct, and we could provide you with a note. I have not looked at that yet.

Q412 Nick de Bois: On HP? That would be helpful, so we will not draw any conclusions from that until we have seen the note. In the industry everyone agrees with the Government’s wish to divest into SMEs as much of these contracts as we can, but there seems to be some unease that basically it has been left to prime contractors to do that job. I am talking about your industry and the feeling that there are some barriers to the success of this. Can I just briefly explore those barriers? When you are awarding SME contracts, are you doing it to an approved supplier base or are you going in on a tendering basis with each of the SME contracts?

Craig Wilson: It can vary. I mentioned the Developer & Solution Partner programme. We have some SMEs that, if you like, if I can use this expression, are inked in, so they are part and parcel of how we deliver our services. For a particular undertaking, where we have a special requirement as part of that project, then we go through an additional tendering process for that kind of provision, so both.

Q413 Nick de Bois: How much of that 30% of you and partners is actually open to new tenders and new suppliers with each new contract that comes along, or an ongoing contract?

Craig Wilson: I would have to let you have a note on that. What I would say generally, and this applies in private sector and public sector, is that the tendency is going in the opposite direction to the one you are pressing, and I absolutely understand why you are pressing in this direction. If I look at our major private-sector clients around the world, the world’s largest corporations, then every single one of them is trying to reduce the number of suppliers.

Q414 Nick de Bois: I accept that and I will come to that. I am coming to that, because I would like to talk to you about your procurement process of the SMEs, because invariably this can lead to barriers to SMEs engaging. We will just follow my thinking a little bit longer of your opening up to new SMEs, to new contractors. For example, when your procurement departments kick in, how wide are your tenders? What is the investment cost/return basis for a provider? Are they having to compete with 10, 20 suppliers? Do you have smaller, narrower bases? How complex are they? Are you effectively putting in barriers, maybe without realising it, to SMEs?

Craig Wilson: Our interest is always to get the very best value for HP, which we then need to pass on to our clients, so the answer is that it would vary from category to category. In some cases, with the sorts of things we are procuring, the simple fact is there are probably only a handful of companies that provide that particular type of capability. In other cases, it is a very general capability. A good example would be people who are providing contractors to HP; there are hundreds of those in the UK. We would seek, through an open procurement process, to narrow that down to a manageable number-fewer than 10.

Howard Hughes: Could I give a couple of perspectives? If I just flip what you said around slightly, in some cases, particularly on the large programmes where for either security reasons, the scale of the programme or the speed of the programme, actually contracting through a large prime means the barriers could be lower, because you would not expect a 10person infrastructure management company in Sheffield to be able to meet all of the Government’s obligations around dealing with protectively marked material, certain contractual flowdown obligations from Government. The prime would hold theirs at their level, engage with the SME, engage with the subcontractor, but not flow all of those issues down.

Certainly on some of the larger programmes, you would get more and quicker traction with the SME community through a large prime, than you would if you were trying to manage the 300plus subcontractors. In a large infrastructure programme, you need hundreds if not thousands of moving components. We embrace local subcontractors and small companies, because they tend to be very agile and come with some innovation as well. They come with some good ideas.

Q415 Nick de Bois: That is my point. If I was to look at your supplier base, you have talked about narrowing your supplier base, which obviously would lead to frustrations for many businesses, but I get it; I understand why you are doing that. How many new ones are you actually taking on? How easy is it to expand the SME base in your business?

Craig Wilson: I mentioned first of all that a company like ours is completely dependent on our partners and suppliers, so 8,000 in the UK. The programme that companies join all the time has 570 suppliers, which is the Developer & Solution Partner programme. That is free to join; any SME that is even watching this evidence would be welcome to join that programme. In the nature of business-and of course you will have taken evidence from various SMEs, I imagine-if in that process you have not been selected, then you will complain bitterly about the process. We could equally give you evidence from the SME community that does very nicely out of the-

Q416 Nick de Bois: Actually, do you mind if I interrupt? I do not think that is really my question. What I am actually saying is: could you, for example, point to some evidence? What is the churn of your SMEs? How long are they with you? Are they leaving you quite quickly? Do you have longterm SMEs? The point I am making is it is all very well inviting lots of people to submit a reason to come and work with you, but what is the evidence at the end of the day? How easy is it to become a new SME provider to you and obviously to others in the industry? Is there evidence to support your claim that it is pretty much an open process?

Craig Wilson: I do not have the numbers in my head. Let us pull those numbers together for you and let you have a note on that point. What I can say is that I get approached every week by SMEs that have some new idea, and they are not always existing partners of HP. When you get into a formal procurement, then they probably feel it is slightly bureaucratic, by the nature of these things, but I am not aware of any barriers that we erect to SMEs doing business with us. On the contrary, we want more SMEs and we are anxious to get them.

Q417 Nick de Bois: I am conscious of time. Let me just ask you one more question: are you aware of practices, incidents in your company or other industry companies, where SMEs have, as part of a bid process, provided effectively what is an intellectual property right as part of their solutions, as part of a bid process, which they have subsequently gone on to see being taken on board by a prime contractor, without themselves being hired to do it? Effectively the idea is taken from the bid process and then becomes part of an inhouse process. To be clear, are you aware of any practice in your business like that or within the industry?

Craig Wilson: No, I am not, which is not to say that there will not be examples somewhere. Let me explain why I am pretty confident that it does not happen generally. It is because IP, as you will know, in contract law is generally an uncapped liability, so the penalties, if any supplier is caught using illegally another supplier’s intellectual property, can be extremely severe.

Q418 Chair : If you were a fivemanandadog company, would you counsel them to litigate against Hewlett Packard? Realistically, we know this must be a temptation. One of your managers must say, "Oh, that is an extremely good idea. I will pretend it is mine."

Craig Wilson: What I would also say is that, if your business is dependent on it, the answer to your question is yes.

Q419 Chair : That is the point, isn’t it? You are not dependent on it.

Craig Wilson: No, for the SME.

Q420 Chair : Yes, but the point is you are not dependent on the SMEs.

Craig Wilson: In aggregate, we are dependent on them, in the sense that we cannot do what we do without their help.

Q421 Chair : There must be a temptation also that, when you tender something to SMEs, if you find you can do it cheaper in-house, you do it cheaper in-house. You would, wouldn’t you?

Craig Wilson: If we can do it cheaper in-house, then we would do, but your question was about the use of IP.

Q422 Chair : You cannot really guarantee that this 25% is going to go out to the SMEs, can you?

Craig Wilson: We are going to provide you with a note saying exactly what does go out.

Q423 Chair : You cannot guarantee it, can you?

Craig Wilson: No, I was not seeking to guarantee it.

Chair : No, but I think it is an important point.

Q424 Nick de Bois: Just one final question, sorry. Regarding barriers to SMEs, could I ask you about your payment terms to SMEs? Do they reflect the same payment terms that you are getting from Government? Are they more favourable or less?

Craig Wilson: That is a very good question, because the answer is they do not always reflect what we enjoy from Government, and that is a very good point. The reason that this occurs is because the procurement process is decoupled from the contract piece, as it is in all large companies, by the way. I think, and Government has been active on this particular point, that Government is right to press all large suppliers to pass on those favourable terms. We should not be taking advantage of the leadership Government is showing in the way in which it has set standards around payment terms.

Q425 Nick de Bois: It is cash flow advantage to you, with all due respect. You do not need it as much as SMEs.

Craig Wilson: That is exactly right and, where those examples come to light, I am happy to take those up and see if we can get those adjusted.

Nick de Bois: I hope that is the case.

Chair : That is a good sentiment. Thank you for that. Moving on: skills.

Q426 Kelvin Hopkins: Has the Government’s tendency to outsource its IT needs left it without the skills it needs to be an intelligent customer that is able to manage its contractors. Computer Weekly has argued that the Government gives contractors the job of telling it what it needs to buy from them. Is that still a fair assessment of the situation?

Craig Wilson: I do not think that is a fair assessment. First of all, Government’s general approach to this question is not very different from the approach taken by the vast majority of large corporate customers. In terms of its approach to using outsourcing, the delivery of a lot of what it needs is pretty much the same; it is not different in that regard. The other point I would make is that Government, particularly in recent years, has got much better-and you took evidence from two of them yesterday-at taking exceptionally good skills from the private sector and bringing them into Government at a leadership level, so that is another factor.

The other point is, if I look back over my nearly 30 years around this particular question, some of the most effective leaders in Government have not, as it turns out, come from the IT profession. They are people who have come from the individual departments, and they are effective because they understand, in a firsthand way, the business workings of those departments. Generally speaking, I do not think it is the case that there is a big skills problem. With that said, there are certain areas of skill that need to be protected inside Government and should not be reliant on outside advice. We set some of those out in our evidence to the Committee.

Q427 Kelvin Hopkins: Had Government had a powerful inhouse IT facility, crossdepartmental, able to advise departments as well as within departments, then we would not have had these series of disasters in the public sector over many years and we would not have had the vast additional costs, cost overruns and whatever that have taken place. Is that fair?

Craig Wilson: No, I do not think that is fair. It could well have helped on occasion but, generally speaking, I do not think that is a rootcause issue in terms of individual project failure. There are some key skills that Government does need to protect inside that crosscutting piece, which we have mentioned but, if you look at the generality, Government does not need thousands of civil servants doing that work, and that would not be thought of as orthodoxy in other types of engineering. Government does not keep thousands of architects in-house; it does not keep thousands of nuclear power station experts in-house. Why would that apply to IT?

Q428 Kelvin Hopkins: It is not numbers; it is about skills. You have a strong power relationship with SMEs. If Government had the same kind of power relationship with you, they could keep you, in a sense, in line better; they could have made sure that things did not go wrong. They would have kept costs down and made life a bit more uncomfortable for you and made it more demanding for you. At the same time, it would have been better for the public purse and better for the public interest.

Craig Wilson: I think that is a good point, but it is precisely what Cabinet Office is acting to do. I know you will be taking evidence next week from the Minister and Ian Watmore on precisely that, but I can tell you that they are taking a much more controlling interest in the way that they manage individual suppliers-for example, with the appointment of crowned leads for individual suppliers, so one senior official who understands the totality of the business suppliers like Hewlett Packard do with Government, so they can see all of the moving parts and drive us to deliver more and more efficiency across the range of what we do. What you are describing is understood and consistent with what the Cabinet Office is trying to achieve.

Q429 Kelvin Hopkins: Are you saying that they are now effectively-and I say "effectively"-closing doors after many horses have bolted, but the doors are being closed at last?

Craig Wilson: I think the doors are being closed. I would add by the way that that dialogue that all of the big suppliers are having with the Cabinet Office is not notably different from the kind of dialogue we would expect with a big commercial organisation. You might say "at long last", but they are very determined, I can tell you, in those discussions.

Q430 Kelvin Hopkins: One last pointed question: do you think the Government’s lack of skills means you are able to secure a higher price for your services than might otherwise be the case?

Craig Wilson: If that were the case, then we would be making a premium profit. There is a point that we have touched on before, which is back to this point about both the patchwork quilt-the separation of things into individual pieces, so there is redundant variation-and the other point is about goldplating, which we have mentioned. In terms of skill, no, I do not think so; I think Government has some excellent skills in terms of procurement and leadership now around these issues.

Q431 Kelvin Hopkins: It was suggested earlier that a workstation in central Government costs twice as much as a workstation in local Government. That suggests that something has gone wrong somewhere and someone is making more money than they might otherwise do if it were better managed.

Craig Wilson: I can only tell you what we see, and that is not the case. I am going to let you have a note on that. There is a point here though; there is a point and we have already made it, which is that, once Government has decided on one of these common assets or, in the language of the Cabinet Office Minister, tight controls versus loose controls, having decided that something needs to be tightly controlled, like for example the provision of desktop services or hosting services, the bit that follows is a determination to use that aggregated procurement vehicle across Government. That is still an area where there are question marks. Government does have some of these very efficient procurement vehicles already in place, but they are not used across all Departments today, and that is something that the Cabinet Office is beginning to get out.

Q432 Chair : Before we move on, I do not think our concern is that the Government’s lack of skills, as buyers, means the margins go up. Our concern is that you are able to sell them far more than they probably need, to make things more complicated than the Government really wants them, so that you get more business at the same margin. Is that unfair?

Craig Wilson: It is back to this point about redundant variation, so it is fair in the sense that some of these things that should have been in the past aggregated at the centre were not. The result is that overall spending is higher than it needs to be, and we have made that point in our evidence.

Q433 Chair : Would you agree with this statement: "We are complicit in the services sector as well because suppliers should have the experience and the gravitas to push back when they know things are not right. Too often they go along with things because they have got a contract, and this is the only means they have of being paid." Do you remember those words?

Craig Wilson: Of course I would agree with them; I think they were my words.

Chair : They are, yes.

Craig Wilson: I think that is the case. In the past, some of these relationships were a little bit cosy with individual departments, but CIOs, departments and the centre have recognised that. It is beholden on suppliers, particularly the larger suppliers, to take more leadership around these issues, which is what I was referring to in that quotation.

Chair : Thank you for your candour.

Q434 Robert Halfon: Could I just make a very brief comment on my colleague’s questions? In essence-we were talking about in-house-you have become a de facto inhouse supplier of IT to Government, so the question of whether you are in-house or not is immaterial. Going to Open Source, how much of the IT work that you do for Government uses Open Source standards? Could you set that out briefly?

Craig Wilson: I do not know what the percentage is but, first of all, we are big advocates of using Open Source. Open Source solutions are available on all of our computer systems. All of our printer software is available for Open Source solutions. We will routinely in Government bid an Open Source alternative when we are asked to bid for work, and we can point to various examples of those.

However, generally speaking the case for Open Source is hugely overstated. The reason for that is, if you look at the big projects, any of the big spending in Government, the element of the total spend that is perhaps meetable with an Open Source solution is a tiny component of the overall system. There is no Open Source version of Universal Credit or selfassessment.

Q435 Robert Halfon: There could be. There was a Government policy announced on Open Source in 2002, then another one in 2009. There has been a significant lack of progress, and isn’t the reliance on proprietary software and in particular the limited IT suppliers, such as yourself, the reason why Open Source has not been developed?

Howard Hughes: I think it is all about risk. At the lower levels of a system, in the network, in the platform, you will find all of your Government departments, to a greater or lesser degree, have embraced Open Source operating systems on their infrastructure. For most providers, whether or not it is HP, IBM or Oracle, you can now ship their platform with a form of Open Source operating system on it. We have groups of people supporting UK Government projects with Open Source skills, because the risk at that lower level of the architecture is perceived to be very manageable; we can train the people to support it. As an example, the Linux operating system has a long track record. The Department and us are happy to take that risk.

Q436 Robert Halfon: When I asked you, you could not tell me how much Open Source you have. Is it not in your interests to discourage Open Source, because it means that people are not tied up in your software and, at the moment, they are chained to what you supply?

Craig Wilson: It is a good question but, if I may, it is a very mixed picture. This comes back to Howard’s point about overall risk. In some cases the advantage is, for some types of component, it is very cheap or even free but, generally speaking, you need more effort to make all of the pieces work together. I assume that, if you took a straw poll in this room, even though we could all use free software on our computers at home, we probably do not. Most people here would not use Linux and OpenOffice on their home computers.

Q437 Robert Halfon: They are going that way. People are moving towards cloud computing, away from Microsoft.

Craig Wilson: That is different. Cloud computing is not the same as Open Source software. If you take Google, for example, it is free-that is true-but it is also proprietary. We have to make a distinction, I think, between cloud computing, which is an important issue in its own right, and Open Source. They are not the same thing.

Q438 Robert Halfon: They are similar in principle.

Craig Wilson: No, not at all.

Q439 Robert Halfon: Would you be able to supply the Committee with a note on how much work you do for Open Source?

Craig Wilson: Absolutely.

Q440 Chair : Shouldn’t we be experimenting with completely different concepts-that actually Government is a data and services warehouse, and we should hand over the interface with the public to a plethora of different suppliers, so we want to design bespoke websites for different client groups? Why does it all need to be centrally controlled in the way it is currently?

Craig Wilson: It does not, Chairman, and I think that is a very good point. It is the central point that Ian Magee and his colleagues were making in the System Error report. We have to make a distinction between what the authors described as "platform" and what they described as "agile", but they are using those words to engender much bigger concepts. To your point, in the agile space, the Government could do far more by simply opening up some of those, the term is, application programming interfaces.

Q441 Chair : That requires mandatory Open Standards. Don’t you really need the Government to lay down a specification for Open Standards, from the centre, across all Government departments?

Craig Wilson: Yes and increasingly it is going down that route.

Q442 Chair : It still has not done so.

Craig Wilson: Well, there are some very good examples of Government opening up data and, as a result, the supply community generally coming up with some very innovative solutions. The oftenquoted example is in train timetabling, but there are lots-

Q443 Chair : That was the private sector, of course.

Craig Wilson: -that have gone down that route. It is against the context in which Government said, "We want to open that data up." Ordnance Survey would be another example, but those are trivial examples.

Q444 Chair : It is not just opening up the data; it is opening up the interaction with the services. You might go to a variety of different websites to order a television licence or whatever.

Craig Wilson: Absolutely, and I think you will see more of that. Sometimes you will hear the phrase Web 2.0 as an umbrella phrase to capture that thought, but that is precisely the idea: that Government should not determine all of the ways in which that data might get used. On the other hand, the other part of the distinction is that clearly all of that is also dependent on the underlying platforms that have to be transactionally correct.

Q445 Chair : I accept that, but can you envision a Tesco, Post Office or Amazon website providing access to Universal Credit? If you put in the right information and provide the right assurances, you will get your Universal Credit.

Howard Hughes: Conceptually, absolutely yes. I think we have skated over three or four subjects there.

Chair : I am a customer, not a technocrat.

Howard Hughes: Should the Government and the supply community open up standards to allow people-let’s just use the words "Government cloud"-outside of the Government cloud to write applications to integrate into backoffice Government systems. Absolutely. In that example, would it be a great way to drive up adoption of Universal Credit by having applets that the Post Office, Tesco, Sainsbury’s and Waitrose could utilise on their own website? Absolutely, why not? Should we encourage that use from our community as well? Why not, because some of those companies are our biggest clients?

Craig Wilson: What enables that kind of choice is a very clear definition of the other part of it, which is the platform piece, where you do have to put very strict controls around data that need to be kept private. You would expect the calculations to be done accurately and done once. The other side of it is the agile side, where we could open up those kinds of services. The idea that these communities are going to be drawn to a Directgov website for all this kind of interaction is quite an oldfashioned idea.

Q446 Lindsay Roy: Very briefly, how does Government become a more intelligent customer? In your evidence, you list the skills that you think Government should always have in-house. Do they have them? Is there a strategic issue? Is there an issue about lack of coordination?

Craig Wilson: Yes to all of those, but equally I would say that these issues are well recognised and well documented. I would wholeheartedly commend the System Error report and I would also look at the NAO report on the use of IT, which is also referenced by the way in the System Error report.

Q447 Lindsay Roy: What are the main shortcomings and what should the Government do about them?

Craig Wilson: There are a number. The first is the one we have already mentioned. The Cabinet Office Minister uses the phrase "tightloose controls". We have made this point a number of times; it is making a distinction between those things where the variation across the whole of Government is redundant really. Government needs to aggregate those things and buy them once, very efficiently. A good example is data centres. Nobody really knows how many data centres the Government has, but it is in the hundreds. To give you a comparison, six years ago that was also the case for Hewlett Packard in the way that we ran our business. Today, we run the entirety of our business from just three pairs of data centres around the world. There is no reason why Government could not do the same thing and build very efficient data centres that are then shared across the rest of Government. That is this tightandloose point. That is the first one I would mention.

The System Error report talks very eloquently about the opportunity to use agile methods, so I will not go into a lot of detail around that, because I think it is all set out very neatly in there, but then I would go to the point that we have just been touching on, which is that I think we have to do things to encourage Government departments more generally to embrace the opportunities IT holds to solve some very deepseated problems. One of the things that is holding us back generally is the very subject of this inquiry: there is a sort of thought that IT is part of the problem. I do not think it is part of the problem; I think it is potentially part of the solution. We have talked about some of those innovative ideas that Government could do more with.

Lindsay Roy: In the interests of time, Chairman, I will forgo any other questions in relation to this.

Q448 Nick de Bois: Can we just turn to the period of contract renegotiation that followed the last General Election? I know there are obviously certain things you will not be discussing that must remain confidential, but I want to talk about process a little, if I may. There was one vocal critic who suggested it was a bit of a onesided approach from the Government that basically would not allow any simplification of the systems or attempts to allow you to drive down the work you have to do a little in return for driving down the costs. Was that fair? Did you think the process was onesided?

Craig Wilson: No, not at all. To that very point, I think it is where the conversation might have started off, but it is certainly not where the conversation ended up. In our case, we can probably share more of that detail with you than you might suspect. Our approach was to embrace that MOU process in a genuine and authentic way. The result is that, in the current fiscal year, we will deliver significant savings to Government that have been audited. Those savings, once they are achieved in the current fiscal year, will repeat.

Nick de Bois: They will recur, yes.

Craig Wilson: They will recur, exactly. Now, as would be the nature of these things, and this would happen with a private sector client, as you can imagine, they will go to the point about margin. They will say, "Well, we have heard what you have said about margin but, nonetheless, we still want you to reduce those margins," and you would expect that in the dialogue with any client. Our response to that is to say, just as it is reasonable for Government to ask that question, it is equally reasonable for us to ask for the kind of flexibility that you are talking about to deliver things in a different way. In our experience, Government has been completely open to those ideas.

I can give you an example. If you take our defence contracts, a significant amount of the savings in the current fiscal year will come from the collection of defence contracts. One of the things we said was that instead of having goldstandard support arrangement for whole swathes of that community, what we could do was aggregate some of those so that, where that is unnecessary, we charge a lower rate. If you can change that requirement, then we could deliver some significant savings, because we would not have to offer different types of service. They have been open to that idea and, as a result, we will offer significant savings. I think it has been a very positive process.

Q449 Nick de Bois: Would you have also been in a position to negotiate some flexibility or advantage from it as well? I am not necessarily critical of that, but would you have been able to extend any existing contract arrangements for a longer period-to say, "Look, we are going to do this. Can we have another couple of years on this contract?"

Craig Wilson: We were under very clear instructions from Cabinet Office Ministers and officials that those kinds of propositions would be frowned upon for reasons that I think are understandable. In our case, we have not led with those as ideas.

Q450 Nick de Bois: There were boundaries, if you like, that you were not going to cross, as set out by the Cabinet Office in renegotiation.

Craig Wilson: That is right. That does lead to a practical problem, which I can come on to but, generally speaking, that is not the route that we have gone down, because it is one that officials were guiding us not to.

Q451 Nick de Bois: You took a constructive engagement approach to effectively recognising that this was going to happen. Would you understand that some people might say it was easy to cut the margin, because you had a high operating margin anyway? Is that an unfair comment to make and, in your case, did you cut margin as part of this process?

Craig Wilson: No, we did not cut margins but, as a result of the savings we have delivered, obviously the total revenue has gone down and the margin that would go with that reduced revenue has gone down, if you see the distinction between the two.

Q452 Chair : Were you generally happy with this process?

Craig Wilson: Yes.

Q453 Chair : Was it a bit arbitrary?

Craig Wilson: No, I think it was a very methodical process and, as I said at the beginning, it was a process that is not unusual to us. If you look at our major commercial clients, they are going down a similar route, so it is unusual in that respect. Let me be clear: the result of this is that IT costs less for Government. You might ask what our motivation in that is. The motivation is actually clear and it is a selfserving motivation, which is that our calculation is that, unless we are seen to be delivering good value for money across Government, ultimately we will not get more contracts.

Q454 Chair : It is a bit embarrassing, isn’t it?

Craig Wilson: Which?

Chair : For your customer to come along and say, "Look, you are charging too much," and for you to agree.

Craig Wilson: No, I made the point that I cannot think of a single significant client worldwide that we have not had that conversation with in the last 18 months or so, for reasons which I think will be clear to you.

Q455 Chair : I understand that. I just wanted to put the point. Moving back to the question of agile development, we have heard quite a lot about this in our inquiry, and you referred to the System Error report from the IfG. Isn’t there a risk to your business of the Government really embracing agile development, because it lets the SMEs have direct access to the Government and you no longer act as intermediary?

Howard Hughes: I will have a first go at that. Globally, we as a corporation adopt agile techniques. A good example in the UK-I do not know if we are allowed to mention the company. Are we allowed to mention the company?

Craig Wilson: A large telephone company.

Howard Hughes: A large telephone company-a large amount of our applications development with them is using agile techniques, and we have seen the benefit of that. We view agile as another tool in the kitbag. On some projects, it is totally appropriate to deploy those agile types of techniques and agile ways of working where, as an example, you want to develop policy and the IT solution together, where maybe the IT solution is informing policy at the same time. Quick iterations of a complete solution, getting to a prototype quickly, rather than a longdrawnout requirementsgathering exercise, are totally appropriate.

We do not see it as a risk; we are embracing it. We expect to use some agile techniques in a number of our projects in UK Government this year, and, on some of those projects, we will use some small subcontractors to help us deliver them. We do not see this as a threat; we see it as a market trend that we will embrace.

Q456 Chair : I am delighted to hear you say that, but I am also told that you have to say that because your customer wants to have more agile development, so you have to say that. If you move into this field more and more, you still want to be able to control it. Isn’t this an opportunity, this is the point I am making, to bring in the SMEs to have a direct relationship with the Government? Can I give you an example? The VME operating system as a hangover from ICL days still predominates in DWP. Why not get a dozen or two dozen SMEs to brainstorm how to convert the data into a modern operating system? If it remains locked in at present, it is going to go on for years, isn’t it?

Howard Hughes: A bit of history, I think, and a couple of perspectives on that. I am relatively new on the account; I am happy to give you data on this through a note. I think there have been numerous attempts over the years to look at how we replace some of those ageing VME systems, both by departmentled initiatives and contractorled initiatives. If anybody is sitting there, fit, dumb and happy, thinking that VME is the future and we are happy to sit with those legacy systems, I do not think that is the case.

Coming to the present day, do we feel threatened by working in an agile method, either our own company with the Department or our own company with other subcontractors working on agile techniques where we get to a solution quicker? We maybe find risks in the process quicker than the traditional waterfall method. I would say, and I honestly do not have to say it because my client wants me to say this, I would embrace that. We do not like to get to the end of a project and suddenly find that what we have built does not meet the requirement.

Craig Wilson: I can help with a little bit of the history. I will be brief on this point. Time and time again, some very smart people inside the department and more generally have looked at that very point, and the collective view is that, rather than try to crack the VME problem, over time we should simply let those systems wither and die away, rather than expend a huge amount of effort in converting this tangle of legacy systems. That is indeed what is happening. In all of the new systems that are being built, for most of the significant parts-Universal Credit, being an example, but I would also talk about Employment and Support Allowance, which Joe Harley mentioned yesterday-the new things are not perpetuating that dependency on VME. Eventually you will get to the point where there is nothing left running on VME and it just goes away. Does that make sense?

Q457 Chair : That is the solution, is it? I thought care allowance had been migrated from VME to the new system, UNIX or something.

Craig Wilson: There have been examples of-

Q458 Chair : So it is possible?

Craig Wilson: It is possible but, if you look at a big VMEbased system today, like an income support computer system, the business case simply is not there to put the effort in to convert from VME, because eventually those systems will be replaced by the new systems.

Q459 Chair : Isn’t there a vested interest in running on legacy systems? I appreciate that VME is not your software, but somebody has a vested interest in running that system on.

Craig Wilson: There is a calculation to be made, and this is the same in the banks, by the way. Most banks are very dependent on their core banking systems, which still run on pretty aged mainframe technologies, generally. Why do they not convert? Because the business case is always slightly beyond them. It is better to let the strategy play out; build the new systems with the new technology; make sure they are not perpetuating a dependency on the old technologies; and let the old stuff disappear naturally.

Q460 Chair : Looking at Government, you say you can provide agile development capability for the Government. What skills does the Government need in order to make it work?

Craig Wilson: I think that is an excellent question, and in the System Error report they do go to that point on several aspects. I know this is a question that the Committee has asked. There are some things about the nature of Government IT that mitigate against using agile techniques that we have to grapple with, and one of them is that there is an overriding resistance generally to spend any money in a nugatory way. By the nature of agile development, you will try something; if it does not quite work, you throw it away and go in a different direction. We are all convinced that, overall, this is a good thing, but there needs to be some cultural development in the way most Government projects are developed. By the way, you heard evidence yesterday that some of the newer projects are absolutely embracing this technique. It is not impossible. I am just saying that it is not in the nature of most Government departments.

Q461 Chair : Are the procurement rules an obstacle to this?

Craig Wilson: Yes, they can be, in the sense that the way that procurement works in a formalistic way often requires you to have a fixed specification against which everybody then bids, whereas in an agile world what you are really seeking from suppliers is a capability, and then what emerges is a result of those iterations that we were talking about.

Q462 Chair : It becomes impossible to treat all potential contractors in exactly the same way, because you might want to have much more of a conversation with one than another, even though they are in the same contracting process.

Craig Wilson: I think that would be sensible anyway. To certain suppliers, you might say we are looking to them to deliver the platform elements. It might be a particular technique that is appropriate to the delivery of those components. This piece over here we need to do in an agile way, and we will have different kinds of suppliers providing those aspects.

Q463 Chair : I appreciate that, but supposing we are letting a contract for a bit of agile development; it might be quite a small piece of work so you potentially have a large number of contractors. Some are going to be more interesting to talk to than others, aren’t they?

Craig Wilson: Yes.

Q464 Chair : You are going to spend more time as a customer talking to some of the potential contractors than others, but that is not treating them equally, is it? Is that a problem?

Craig Wilson: There is something in that but, generally speaking, most Departments would say that there are no barriers to them speaking directly to anybody they want to speak to, and you heard some evidence yesterday on that particular point.

Q465 Chair : We have evidence from small businesses that say they go to talk to Government directly, and they say, "No, you cannot talk to us, because of the rules. You have to go through the prime contractor."

Craig Wilson: There is a point here that, if that was not the case, Government departments would be inundated with people wanting to-

Chair : With ideas, perhaps?

Craig Wilson: -have a chat with them, so they have to go some sort of triage. Generally speaking, in the case that Phil Pavitt used yesterday, there was no impediment to HMRC having a dialogue with VocaLink.

Q466 Chair : What happens if a small business has an idea that actually deconstructs your very large contract? You are going to filter that one out, aren’t you?

Craig Wilson: Generally speaking, the ideas they come to Government with are about doing things in a better faster way. We are just as interested in that as Government is.

Chair : Moving on: IT policy and processes.

Q467 Kelvin Hopkins: You say in your evidence that IT is now on the critical path of almost any significant policy initiative, and that it is important that IT is not considered as an afterthought. Have you experience of this happening?

Craig Wilson: Yes. It is getting better, but generally speaking, and in some cases for good reasons, as I mentioned before, we can find that, in the overall lifecycle of a piece of new legislation, IT and the business preparations in the relevant departments get concertinaed into the second half of the process. On day one, the business changes, and the IT are on the critical path to deliver the project. That can happen, yes.

Q468 Kelvin Hopkins: Is more required to change mindsets with some people to make sure that IT is considered earlier? Is it still a problem?

Craig Wilson: Yes, I think it is generally a problem, but it is a problem that is generally understood as well. If you take the departments that we would consider to be the leaders in this regard, departments like DWP, this has been a longrecognised issue, and there are pretty well-tried and tested means by which they can involve suppliers and the operational parts of their business early in the development of the project thinking. Universal Credit is a good example of that, where customers, operational people and potential IT suppliers are part of the thinking early on in that project, in order to derisk it for Government.

Q469 Kelvin Hopkins: You should have a role in helping Government to identify best solutions as well, given that you will have inevitably more expertise than Government, even in the best of all possible worlds. Suggesting the best solutions is part of your responsibility.

Craig Wilson: Yes, that is true, but we are also mindful that Government needs to maintain a degree of competitive tension as well, so that is the balance in that dialogue.

Q470 Kelvin Hopkins: Is the Government open to hearing about how IT could be used to run services differently or is there still some resistance? There might be some dinosaurs like myself, who would not know one end of a system from another, but I appreciate it can do wonderful things.

Craig Wilson: I think it is changing significantly, but there is still work to do. That is the way I would characterise it. It is variable. I would add, and I think Howard made this point earlier-and I think Sir Ian Magee made the same point-that all of these are not pure IT projects; they are big business change projects that are enabled with IT. The point I am making about the dialogue with the IT experts early in the process also applies to the people who are experts in the operational aspects of the departments, who are often on the critical path as well. Indeed, even more important are customer groups because, these days, all of this complex policy, whether or not it works depends as much on the suitability of the process of delivering the policy as on the provisions themselves. Increasingly people recognise that.

Q471 Kelvin Hopkins: Is it in your interest to suggest new ways of working? There is always this worry that it might be in your interest but not necessarily that of the customer or the client. When I am buying a new car, somebody says, "What you want is the deluxe model with a bigger engine," and all the rest. You have that kind of power to do that, but is it in your interest? How do you ensure that the clients and customers’ interests are served properly as well?

Craig Wilson: Like any business, it is in our interest to do what customers drive us to do and, whether we are talking about private sector or public sector clients, they are driving us continuously to deliver more innovation to them. One way we can respond to that is with the help of partners.

Q472 Kelvin Hopkins: Have you any examples of where you have suggested change, where a Government department is thinking of one thing and you have said what you really want is something else, and it has actually been beneficial?

Craig Wilson: Let me think about a really good example. What I would say is that there is a continuing dialogue. "Why do you not do it this way rather than that way?" Generally speaking, because we do find ourselves often in this situation where things are concertinaed at the end of the project, we are generally seeking in that dialogue to derisk things for Government. The nature of that advice is to decouple things so that the implementation of the policy is not dependent on all the different pieces of the programme working perfectly on the very first day of the policy-the computer systems, business processes and the rest of it. I might say, if you look at the things that have been notoriously catalogued over the years, generally speaking those projects are characterised by what is sometimes described as a cliff edge, where everything has to work perfectly on day one. The nature of our advice generally is to break those dependencies, so that those risks are managed out. The experienced departments are very good, increasingly experts, at doing that.

Howard Hughes: May I just make one supplementary point? Traditionally, if we go back 10 years, you would make technology and services decisions throughout the whole solution. You would start a programme and say, "Which data centre is it going in? Which network am I going to connect to? What hosting environment, what security model?" If we segue back to our previous conversation about Government buying once and using many times, having some common components, mainly at the infrastructure layer, a lot of those decisions that previously would have churned on for months and pushed programmes to the right, if we get this right they should become the building blocks that the Government has preordained. I think the supplier community would welcome that.

Q473 Chair : Are you the systems integrator that is going to deliver Universal Credit?

Howard Hughes: We are not the overall systems integrator. We are one partner with the department.

Q474 Chair : Obviously that has already been pushed back a bit, but 2013 is going to be a very critical date. Do you have confidence that the systems will be ready?

Howard Hughes: I am seeing things on Universal Credit that I have not seen before. They have appointed an SRO at the earliest point in the programme, and Terry is getting his arms around the whole programme in a business process change, systems, technology change way, which is critical. Secondly, all the providers, and we are not the lead systems integrator for it, are all involved in this early formative stage.

Q475 Chair : Who is the lead?

Howard Hughes: At the moment, really the department is the lead, because we have a collection of suppliers. Some have incumbency in certain contracts, so we have, as an example, a framework contract that will support parts of the programme. Others are subject to competition, which is ongoing at the moment. There is an open competition for other parts of the programme. After the SRO, I would continue by saying that I have never been involved in the early stages of a programme quite so much as I have this one. All of the suppliers are already working together with the department to try to deliver a successful outcome but, to your point, 2013 is a critical year and that first pilot in May is absolutely vital.

Q476 Chair : Your confidence level?

Howard Hughes: If we continue to work in the spirit in which we are at the moment, and if we continue to knock down the risks, my confidence levels are high.

Chair : Good. We are extremely grateful to you gentlemen for joining us. I do think it is a credit to HP that you have come and given evidence in public. We have not quite Bob Diamonded you, at least not so that you noticed. I am very grateful to you for coming. Thank you very much indeed.