Inquiry into allegations, arising from a BBC NI Spotlight programme aired on 3 July 2013, of impropriety or irregularity relating to NIHE managed contracts and consideration of any resulting actions – Phase 2
Date: 26 February 2015
Reference: NIA 190/11-16
Mandate Number: Mandate 2011/16 Eleventh Report
1. The Committee noted the findings of previous reports into the failings of the Northern Ireland Housing Executive (NIHE). The Committee did not set out to re-examine these issues but rather to consider the actions taken by the Department and the NIHE to address well documented failings in procurement and contract management and related governance issues.
2. The Committee took evidence from senior DSD and NIHE officials as well as the Comptroller and Auditor General (C&AG).
3. All of the witnesses to this phase of the Inquiry acknowledged that the failings of the NIHE in respect of governance, contract management and procurement had been extensive.
4. The Committee agreed that a significant factor contributing to this was an apparent ‘light touch’ approach by the Department in respect of its oversight role, at least until 2010.
5. However, from 2010 on, it is clear to the Committee that Ministers initiated a series of investigations and reviews to establish the range and depth of issues relating to governance, procurement and contractual management and to make recommendations to address these.
6. The Committee was provided with evidence that shows that almost all the recommendations made in key reports in respect of these issues have been implemented and the Committee welcomes this progress.
7. The Committee noted, however, that the implementation of these recommendations has taken a number of years. The Committee agreed that recommendations stemming from reports relating to the NIHE should be expedited in line with a defined timeline for each recommendation.
8. Of key concern to the Committee was the action taken by the NIHE board in relation to the role of, and procedures pertaining to, the NIHE audit committee. In particular the Committee was eager to hear about the arrangements which addressed the issue of management challenge to audit reports which had been identified in the Public Accounts Committee (PAC) report. The Committee was reassured that the revised arrangements, including the provision of draft audit reports to the Audit and Risk Assurance Committee, can provide confidence in the openness and transparency in the NIHE’s procedures.
9. Overall the Committee agreed that good progress had been made in relation to the range of issues relating to procurement, governance and contractual management. However, the Committee also agreed that there was significant work still to be done if public confidence in these three key areas is to be achieved and sustained.
10. The Committee recommends that an urgent review is conducted into the current Transfer of Undertakings (Protection of Employment) Regulations (TUPE) arrangements and the long term sustainability of the Direct Labour Organisation (DLO). The Committee recommends that any future audit of the NIHE maintenance contracts should include a value-for-money exercise by the Northern Ireland Audit Office (NIAO) into the expanded DLO.
11. The Committee was of the opinion that building in an assessment of the viability of the bids submitted by tenders was a key element in the decision to award a contract and noted that value for money did not always equate with the lowest cost. The Committee recommends that the NIHE considers best practice in relation to future procurement exercises practices to ensure proposed tenders are viable.
12. The Committee believes that the changes made in amalgamating the audit and risk committees, and the associated changes in procedures relating to reporting audit findings represent significant improvement in the governance structures. The Committee recommends that the Department and the board of the NIHE regularly review the operation of this committee and the new procedures. In particular the Department should ensure that the required expertise continues to be provided to the committee and any necessary training is provided to committee members to underpin its key role.
13. The Committee recommends that these arrangements should form part of the NIAO annual audit of the NIHE.
14. The Committee believes that the NIHE management should take steps to actively promote the whistle-blowing policy across the organisation, including its contractors, to encourage staff to come forward with issues of concern particularly in respect of contractual, governance or procurement issues.
15. The Committee understands that the NIHE is currently engaged in developing a succession planning strategy. The Committee notes the recent cut in the NIHE budget which will result in significant numbers of staff leaving via a voluntary exit scheme. The Committee therefore recommends that the NIHE develop a strategy for succession planning as a matter of urgency to ensure that NIHE staff have the appropriate range and level of skills and experience to enable the organisation to carry out its functions into the future.
16. In consideration of their responsibility for maintaining good governance and accountability the Committee believes that the NIHE board should review its guidance provided to board members and senior officials who leave the NIHE and join another organisation which has a contract to provide services to the NIHE.
17. All witnesses noted that there was still significant work to be done if public confidence in the governance arrangements is to be achieved and the Committee noted that the NIHE’s current Journey to Excellence programme aims to build, at least in part, on the recommendations of previous reports. The Committee believes it is imperative that the NIHE develops a clear implementation plan for any recommendations stemming from future reports and that these are progressed expeditiously otherwise this will undermine confidence in the NIHE’s ability to make progress in a timely fashion.
18. Following the broadcast of a BBC NI Spotlight programme in July 2013 the Committee initiated an Inquiry into the allegations made in the programme.
19. The Committee agreed terms of reference for its inquiry on 3 October 2013. The Terms of Reference contain three distinct strands:
Decision making relating to the award, modification and cancellation of NIHE maintenance contracts to establish any impropriety or irregularity and, in particular, whether the actions of Ministers were appropriate;
(ii) Allegations that the Committee was misled by the Minister for Social Development over his decision to seek a review of the specification for the supply and fitting of double-glazing;
(iii) The adequacy of actions proposed by the Minister, the Department for Social Development (DSD) and the NIHE to address previous, well documented failings in relation to procurement and contract management;
Should the Committee identify any evidence of fraud or corruption in relation to the operation of NIHE maintenance contracts and/or any actions indicating possible breaches of relevant codes of conduct, these will be reported directly to the appropriate authorities.
21 At its meeting of 3 October 2013, the Committee agreed that it would approach the Inquiry in phases and decided to initiate phase one of the Inquiry by investigating Strand (ii) of the Terms of Reference. The Committee published its report on phase 1 of its inquiry on 3 July 2014.
22. At its meeting of 14 November 2013, the Committee considered and agreed an approach to the Inquiry that reflected the principles of procedural fairness. This was subsequently revised and the revised version is included in appendix 7.
23. Phase 2 of the Inquiry relates to:
The adequacy of actions proposed by the Minister, DSD and the NIHE to address previous, well documented failings in relation to procurement and contract management.
24. In addressing the issues in this strand of the terms of reference the Committee considered a number of reports that were produced in response to concerns about contract management, procurement and governance issues in the NIHE. The key reports can be found in appendix 6.
25. It was not the intention to re-investigate these issues or question the conclusions of these reports. Rather the aim of the Committee’s Inquiry was to consider the actions taken by the Department and the NIHE to address well documented failings in procurement and contract management and related governance issues. In particular the Committee considered the extent to which the recommendations made in these reports had been implemented.
26. The Committee received written briefings and held five evidence sessions as part of its consideration of these issues.
27. The minutes of evidence from these sessions are at Appendix 2
Consideration of Evidence
28. The Committee considered the well-documented failings identified in previously published reports. A synopsis of these failings relating to governance, procurement and contractual matters is outlined below. The Committee would emphasise that these are not new findings but are presented to provide context to the Committee’s deliberations.
29. Contracts were inappropriate, out of date and not fit for purpose and opportunities to strengthen them were missed as far back as 2007;
30. Recommendations from the C&AG aimed at addressing shortcomings in contract performance were ignored;
31. Management placed too much emphasis on a partnership approach and not enough on scrutinising the work done by contractors;
32. Senior management failed to equip staff with the right skills and knowledge to effectively manage response maintenance contracts;
33. As a result, with a few notable exceptions, many District Maintenance teams were not delivering the required standard of service and were failing to challenge the poor performance of contractors;
34. There were also serious flaws in how jobs were selected for inspection; how inspections were carried out; the timeliness of these inspections and how the results were recorded and reported;
35. There were widespread and systematic weaknesses in the setting and use of Key Performance Indicators to evaluate contractor performance;
36. It is very likely that performance data was being manipulated;
37. Reports produced by the Repairs Inspection Unit (RIU) and Internal Audit Branch identifying poor quality work were not properly considered or acted on;
38. Reports were actively withheld from, or not fully reported to, the Board or the Audit Committee;
39. Although the Housing Executive terminated its contracts with Red Sky in July 2011, it had numerous opportunities to terminate prior to this but failed to do so;
40. It also failed to issue a strong rebuttal to Red Sky in response to the company’s clear attempt to have a Housing Executive employee moved from their post;
41. In 2000 and 2005, there were allegations of NIHE maintenance officers accepting excessive hospitality from the company;
42. Despite a clear warning from the PSNI in 2006 about the inadequacies and weaknesses of its systems the Housing Executive did nothing, this undermined its ability to effectively manage its contracts and guard against and tackle fraud;
43. In 2005 NIHE found that £264,000 had been overpaid to Red Sky. However, following investigations, NIHE decided not to penalise the contractor as responsibility for some of the overpayment lay with NIHE staff. Following negotiations, NIHE recovered £20,000 from the company; and
44. There was a very real concern that the weaknesses and failings identified in response maintenance were systematic and extended into other areas of Housing Executive activity, such as planned maintenance, kitchen replacement, heating schemes and land deals.
Corporate Governance and Accountability
45. The Department was not alert to the problems in the Housing Executive, which were evident over many years;
46. Governance and Accountability structures that were in place were not working in practice;
47. The Department and the Board relied on assurances from Housing Executive management about the operation of these structures without appropriate challenge or work to validate the substance of those assurances;
48. Information provided by senior management within the Housing Executive to the Board on important issues was inadequate;
49. In some instances key information that should have gone to the Board was deliberately held back by senior management or was presented in a superficial way that glossed over problems;
50. Fundamental financial management information for proper and effective oversight was not readily available and it would appear that its unavailability went unchallenged by the Board;
51. The PAC was concerned about the involvement of a former non-Executive member of the Housing Executive’s Audit Committee — who resigned from the Audit Committee prior to its March 2007 meeting and became Chairman of the Red Sky Group in April 2007. He subsequently represented Red Sky in negotiations with the NIHE to recover sums which had been paid to the company as a result of it overcharging for work. PAC noted that his involvement was totally unethical and could and should have been avoided. It also highlighted a fundamental breakdown of governance and proper accountability in that his involvement was not discussed by senior management at any stage with the Audit Committee, Board or the Department;
52. It is evident that the Department took some assurance from the status of the Housing Executive as a Centre of Procurement Expertise and the fact that it had gone through the accreditation process. However, PAC raised serious concerns about the accreditation process for Centres of Procurement Expertise on a number of occasions. The PAC stated in their report that this is yet another example which calls into question the credibility of that process and highlights the need for it to be overhauled. The Department of Finance and Personnel (DFP) told the Committee that, following the Committee’s previous concerns, it is carrying out a review of the accreditation process which was due to be completed in 2014; and
53. In 2010-11, of 22 on-going investigations of suspected fraud in NIHE, only 2 had been formally notified to the C&AG. Management wrongfully attempted to trace a whistle blower instead of addressing criticisms. In October 2011, the Department had to do a full reconciliation of all investigations and whistle-blowing cases that the Housing Executive had dealt with in the past or had ongoing and ensure that the C&AG had been notified of them. The C&AG now has a full record and is being updated regularly.
Key actions taken by Department
54. The Committee considered written and oral evidence relating to the action taken by the Department and the NIHE in relation to the findings and recommendations of key reports. The key points of evidence are outlined below.
55. Minister Attwood initiated a review of governance in 2010 following growing concerns about governance and contract management regimes. The Department has indicated that this led to a series of measures to address governance and contract management failings including the establishment of an oversight panel which reported to the audit review team and a gateway review published in January 2011. The Department notes that the NIAO report is very much based on the work that it commissioned.
56. A cross-departmental oversight group with independent members was established to ensure that the review’s recommendations were appropriately implemented.
57. The Committee notes that the Permanent Secretary began holding accountability meetings with the NIHE Chief Executive on a monthly basis beginning in August 2012.
58. The Committee notes that this was in line with the Department’s responsibility as the sponsor department to determine and agree in accordance with the accountability cycle a formal programme of Accountability Meetings with the NIHE; and ensure that such meetings are formal and well-structured covering the key issues.
59. The Committee notes that the Permanent Secretary also wrote to the Chief Executive six times between January 2012 and the end of May 2012 on contractual or governance matters. The Permanent Secretary also met separately with the Chief Executive and the Chairperson of the NIHE to discuss his concerns on these matters.
60. However, it is not clear what the impact of these letters and meetings had on ensuring progress was made on the implementation of the recommendations from the Review of Governance or the Gateway (Health Check) Review given, as noted above, recommendations were still being implemented in late 2014.
61. The Minister also held review meetings with the Chairperson and Chief Executive of the NIHE in February/May 2011.
62. Following the election of May 2011, Minister McCausland initiated a forensic investigation of response maintenance contracts in July 2011 and the findings and evidence were published in June 2013. These highlighted shortcomings in relation to the management of response maintenance contracts.
63. The Permanent Secretary also increased regularity of accountability meetings from twice yearly to quarterly (and subsequently to monthly).
64. In July 2012 the Minister introduced special accountability measures that took account of the Department’s internal audit review recommendations.
65. A further governance review was instigated in September 2013 to consider the progress being made on implementation of the 2010 review, the special accountability measures and the ASM Howarth report.
Key actions taken by the NIHE board
Clarity of issues at board level
66. The board of the NIHE has reviewed its role in respect of the scheme of delegation from the board to managers. The Committee heard from the current Chairperson that they have done this so the board can see the ‘bigger picture’. Both the Chairperson of the board and the C&AG referred to the unmanageable amounts of information provided in the board’s meeting papers which tended to obscure rather than inform members of the board with key issues not being identified. This has been rectified to ensure that the board has a clearer strategic overview of the operation of the NIHE.
67. The board has simplified the structures in the organisation and also reorganised the agendas of board meetings. Through a series of regular away days, the board spends more time working together and engages with external experts to better inform its own way of working.
68. The board also reviews its own effectiveness, checking that what it is doing is working and that it has achieved its goals.
69. There is an acknowledgement that they are still dealing with legacy issues and that there is much more to do.
Establishment of the Audit and Risk Committee
70. In his evidence, the C&AG highlighted what had been key concerns of the Public Accounts Committee in late 2012 and which, in his opinion, went to the heart of governance issues in the NIHE. These included the quality and reliability of information going up to the NIHE board and Audit Committee.
71. The Committee heard evidence that internal audit reports would initially be considered by the chief executive business committee, which in effect comprised the senior management team. It was noted that on a number of occasions, reports relating to maintenance contracts were challenged to the extent that they were asked to be reconsidered before they went to the audit committee. As a result the C&AG noted in his evidence that the independence of the internal audit unit and the corporate assurance unit of the NIHE had been a concern at the time.
72. The Committee noted that until the beginning of the 2013-14 financial year there were two committees – the Audit Committee and the Risk and Performance Committee. These committees worked separately and this offered the potential for assumptions to be made about the other’s work programme and therefore for issues to be overlooked.
73. The board brought the Audit Committee and the Risk and Performance committee together into a unified committee – Audit and Risk Assurance Committee. They also reviewed the terms of reference for this committee – taking advice from three sources of expert best-practice guidance: NIAO guidance, DFP guidance and HM Treasury guidance. The recommendations made by this group were accepted by the board on 29 October 2013. As noted, the ‘new’ committee has been in operation since the 2013/14 financial year.
74. The Committee also heard that the board conducted a review of the committee to establish whether it had the necessary expertise to fulfil its remit. This resulted in new members with significant expertise being recruited. The board believes that this has resulted in a strengthening of the committee’s competence in governance and risk and that the NIHE Audit and Risk Committee is fit for purpose.
75. The Committee noted that the head of audit and the head of the corporate assurance unit now have direct access to the Chief Executive with whom they have regular meetings; and also to the Vice Chairperson of the board (who is also the Chairperson of the Audit and Risk Assurance Committee).
76. As well as receiving reports directly, the Audit and Risk Assurance Committee also receives a specific report which identifies all draft work, planned work and work in progress. In this way the Audit and Risk Assurance Committee is made aware of pending issues that it can take action on earlier if necessary. The Department also receives draft internal audit reports and reports from the corporate assurance unit.
77. In order to deal with concerns relating to the possible alteration of reports by management before they reach the board, a new set of procedures for the submission of reports was agreed by the board on 29 January 2014. The audit and corporate assurance units have also been amalgamated.
78. The Committee heard that while the board is content with the new procedures it is the application and implementation of these that is important. To assist with this the Chairperson of the Audit and Risk Assurance Committee meets with the head of internal audit and the head of corporate assurance to ensure that progress is being made. The Audit and Risk Assurance Committee also appears to be more proactive – asking for reports to be brought forward if it deems if necessary. The aim is therefore to produce ‘timely’ reports rather than retrospective reports.
Whistle-blowing arrangements in NIHE
79. This Committee raised concerns about the support provided to whistle-blowers in the NIHE given that it appeared that whistle-blowers had not previously been treated with the importance they deserved.
80. The Committee noted that the Vice Chairperson stated that he was not going to encourage whistle-blowing but he was going to take it seriously. However, he also indicated that he placed emphasis on the need to put in place robust procedures that are proactive rather than rely on whistle-blowing, which by definition required a reactive response by the NIHE.
81. The Vice Chairperson of the board also noted that as Chairperson of the Audit and Risk Assurance Committee he had placed any reports on additional whistle-blowing or other forms of extraordinary reporting as a standing item on the committee’s agenda.
Contract Management and Procurement
82. Discussions on procurement focussed on maintenance contracts. The Committee heard that the structure and management of the response maintenance contracts have been radically overhauled.
83. The delivery of planned maintenance has also been reviewed. The contracts for example have updated key performance indicators and contract management arrangements, such as the application of low-performance damages, to ensure contractors respond positively to issues identified through assurance arrangements or from issues coming from customers. Dedicated contract managers have also been appointed and design responsibility has moved from contractor to consultant.
84. To address low performance i.e. performance deemed less than satisfactory, a response maintenance intervention was established in 2012.
85. A new statistical inspection regime has also been established to help identify the real issues.
86. The Committee raised concerns about the bidding process for maintenance contracts with contractors previously bidding well below (as much as 30% below) the actual cost price. Members noted that the result of accepting such bids was that this could lead to contractors producing low quality work and ultimately to conflict with tenants and the NIHE. Members noted that a number of NIHE contractors had gone into administration and bidding below cost price may have been a contributory factor to this.
87. The Chairperson of the NIHE noted that contracts have already been let but that there was work to be done to ensure that future procurement processes address this issue as well as to ensure there is a less bureaucratic and simpler way to deal with contractors to ensure that tenants receive an appropriate and timely maintenance service.
88. The Committee is aware that this has greatly increased the number of people working in the Direct Labour Force (DLO) of NIHE as a result of the current TUPE arrangements. Correspondence with the Department indicates that in 2012/13 the DLO workforce numbered around 180 and the salary bill was £4.4m. During 2013/14, as a result of the transfer of work previously undertaken by the former contractors in administration, the workforce increased to 436 by year end. The salary bill also increased to £11.1m.
89. The Committee recognises that TUPE arrangements are key for providing continued maintenance service where a contractor goes out of business. The Committee recognises the importance of the DLO to provide a full response maintenance service to its tenants despite contractors going out of business but it is also clear that this has significant cost implications for the NIHE and this must be reviewed. The Committee therefore welcomes the establishment of a DLO Progress and Development Committee which scrutinises and oversees the in-house resource, particularly in respect of the effectiveness and efficiency of management, performance, governance, and compliance control in the DLO.
90. The Chairperson of the Audit and Risk Assurance Committee noted that until August 2013, procurement risks did not figure on the corporate risk register. He then instituted an investigation into some of the issues surrounding the procurement process and the way that procurement was used by the Housing Executive corporately.
91. He stated that this has led to better processes which capture inadequacies in the implementation of contractual processes, especially the procurement part.
Culture of the organisation
92. The Committee heard that there is now a focus on promoting a new culture of integrity, openness and honesty. This is being taken forward in the Journey to Excellence programme.
93. The Committee was particularly interested to hear about the new arrangements for planned maintenance given the controversy regarding estimated overpayments of some £18m to four contractors under previous planned maintenance contracts. Ultimately, there was a settlement which saw the NIHE estimating that it paid £12m in payments which it could not properly substantiate and £10m of work carried out by the contractors which was not properly verified or costed at the time. Therefore, this left some £2m which was written off by the NIHE. As part of the settlement three of the four contractors agreed to pay the NIHE £670K. It was also determined that the fourth contractor had actually been underpaid by £470k.
94. This arose as a result of the misinterpretation of how a partnership approach to contract management should have been applied. The C&AG noted that this was essentially a light-touch regime that operated on trust and had proper arrangements been in place, including re-measurement of work, then the issue of overpayments and underpayments would not have emerged in the first place.
95. The Committee noted that the delivery model for planned maintenance had been reviewed. Under the new model, design responsibility has moved from contractor to consultant to give the NIHE an added layer of assurance and, at a local level, management arrangements have been strengthened. Dedicated contract managers have also been appointed.
96. The Committee noted that key performance indicators have been updated in respect of the new contracts and that contract management arrangements allow for contractors to be held properly to account where issues arise either from customers or from internal assurance arrangements. The Committee was advised that this also includes low performance damages.
Training and Succession Planning
97. The Committee noted that training for NIHE staff has been given greater emphasis. The Committee believes that it is extremely important that staff have the appropriate level and range of skills to carry out their duties and that this applies equally to staff at the top of the organisation as it does to those at lower grades. The Committee noted that the C&AG believed that improved training for its staff was one of the most important initiatives that the NIHE has taken to address deficiencies in its governance and management regime.
98. The Committee heard that the NIHE was conducting a skills audit to consider what skills staff currently have and what skills will be required into the future, particularly in the context of potential social housing reform.
99. The acting Chief Executive also referred to succession planning as being a critical issue for the organisation. The Committee believes that given the reduction in the NIHE budget as a result of DSD’s spending and savings proposals for 2015/16 there is potential to lose experienced and skilled staff via a voluntary exit scheme and that this needs to be addressed as a matter of urgency.
Progress on implementation of recommendations made in key reports
November 2013 Gateway Review
100. One of the key documents considered by the Committee was the DSD governance review of 2010. The Committee heard that a November 2013 DSD review of the implementation of the 75 recommendations made in this report noted that two thirds had been fully implemented. 3 of 4 critical control recommendations were partially complete and were due to be fully completed by summer 2014.
101. The Committee has subsequently been advised by the Department that all of the outstanding ‘critical’ control recommendations and Ministerial work plan actions have been implemented in full.
102. During the evidence phase of the Inquiry the Committee heard that of 21 good practice recommendations outstanding, 10 have subsequently been implemented and 10 partially implemented, with 1 outstanding. However, the Committee has now been advised that 9 of the outstanding good practice recommendations have now been fully implemented. Therefore there are 2 outstanding good practice recommendations (37 and 54).
103. These relate to the Undeveloped Land Schedule (37) and Final Reconciliation reports relating to revenue replacement schemes (54). In the case of recommendation 37 only 2 sites remain to have an economic appraisal and these should be completed in early 2015. The final reconciliation referred to related to agreement with contractors on the closure of the January 2008 to July 2012 Egan Planned Maintenance Contracts. This was agreed and it is anticipated that these contracts will be closed by the end of the financial year.
Gateway 5 review of new response maintenance contracts
104. The Committee noted the progress made on response maintenance contracts since 2010 but the Committee also noted that the latest Gateway Review (Gateway 5) which considered response maintenance contracts gave an amber/red assessment in respect of delivery confidence.
105. The report indicates that there are a number of issues referred to in previous reports that remain outstanding. These include those relating to contractor administration, contractor sustainability, contract administration costs, performance and supplier management, and TUPE.
106. Of the 8 recommendations 3 were defined as ‘critical i.e. ‘do now’. A further 4 were classified as essential (‘do by’) and one was ‘recommended’.
107. All 8 recommendations were accepted by the NIHE and action plans are being developed to implement these.
108. The Committee has been advised that the NIHE developed an action plan in May 2014 to implement the recommendations for the Gateway 5 review.
109. At December 9th 2014:
3 ‘critical’ are now complete.
2 of the 4 ‘essential’ are now complete with two ongoing.
1 ‘recommended’ is ongoing.
Table 1 - Summary of the implementation status of recommendations
(1) The Senior Responsible Officer (SRO) should undertake a contract resource review to clearly define what roles, skills, and training needs are required, and specifically give consideration to reducing dependency on agency staff.
(2) The SRO should ensure the production of a (preferably online) Contract Management (operational) Guide on how the contracts should be managed.
(3) The SRO should establish a properly constituted Contractors Forum to ensure decision makers from both sides have the ability to air concerns and consider changes that will assist in the overall objective of improving maintenance services to tenants.
(4) The SRO should review the flow of data within the project and assess how effectively it is processed, and its value in delivering concise information and reports appropriate to its audience, concluding in a single dashboard for SRO and Board scrutiny.
(5) The SRO should ensure that an updated Benefits Realisation Plan (with SMART objectives) is produced, agreed, and monitored regularly.
(6) The SRO should review and consider reducing the number of KPIs, to ensure delivery of the projects current objectives and benefits, with clear direction on the application of penalties.
7 The SRO should confirm the formal acceptance of the PPE Report issued January 2014 and ensure governance is in place to oversee its implementation.
(8) The SRO should produce a Vision and Strategy for the management and maintenance of the assets prior to the commencement of the next procurement exercise.
110. It is anticipated that those outstanding will be completed by April 2015 and an NIHE assurance review will be conducted at that date.
Benchmarking of all NIHE services
111. A benchmarking report covering all of the NIHE core activities was submitted to the Chief Executive’s Business Committee in June 2014.
112. The findings of this report will inform the NIHE’s Journey to Excellence Programme. As part of this programme all services will be subject to review over the coming year, with new measures being developed to reflect best how the business is going forward.
Achieving balance in assurance regime
113. A key point, and one acknowledged by the acting Chief Executive of NIHE in her evidence, is that the overall assurance regime has been identified as restricting the ability of maintenance officers to act within the spirit of the contract. The Committee has noted that if this is not addressed then NIHE tenants may not be provided with necessary maintenance to their properties in a timely fashion. A better balance therefore needs to be struck between the assurance regime and service delivery.
114. The Committee noted and welcomed the merger of the internal audit and corporate assurance units which now operate through a single Audit and Assurance Department. A key focus of the assurance function following this merger will be to review the methodologies for the inspection of its planned, response and heating contracts. The aim will be to ensure that these are sufficiently robust but risk-based, proportionate and in line with contracts.
115. It is anticipated that this review will produce a new structure that will deliver a better balance in the assurance regime.
116. The Committee acknowledges the efforts made to achieve this balance but is concerned that progress may be slow and that this may impact on the quality of maintenance provided or indeed in the ability of the NIHE to spend its maintenance budget within the financial year.
117. The C&AG stated that he had qualified his audit opinion on both response maintenance and planned maintenance every year since 2010-11. However the Committee is encouraged that although he again qualified his audit opinion in 2013/14 on both of these programmes he stated that considerable improvement had been made – though mainly in response maintenance. He indicated that he would like to see improvement continue for another year before he would consider lifting the qualification on response maintenance.
Monitoring and testing of new processes
118. The Committee expressed concern that having new processes in place do not in themselves produce better results; the implementation of the processes must also be appropriate and continual monitoring of this implementation is therefore important.
119. The Committee notes that stress testing is being carried out for each of the key maintenance contracts. The revised inspection and audit processes and methodologies have been aligned with the contract and contract management arrangements.
120. The review of the audit and inspection process will be reported to the Audit Risk and Assurance Committee to ensure effective independent oversight.
121. The Committee was also informed that Audit and Assurance will be testing on consultant-led planned maintenance contracts in the first quarter of 2015.
122. In considering the findings of previous reports the Committee reviewed whether the recommendations made in the reports had been implemented and whether the implementation of these recommendations had resulted in improvements in contract management, procurement and governance.
123. It is clear that there had been a ‘hands off’ approach in respect of departmental oversight, at least until 2010, at which time the Department embarked upon a series of investigations to establish the extent of governance and contractual management issues and to implement recommendations stemming from these reports.
124. All of the witnesses acknowledged that the failings of the NIHE in respect of governance, contract management and procurement had been extensive.
125. The Committee acknowledges that there has been good progress since the Review of Governance by the NIHE board and the Department to address these failings albeit from a low benchmark. In this regard the Committee acknowledges the work of previous Ministers to address the shortcomings of governance within the NIHE and their contractual management function.
126. This has been a step-wise, measured approach to improving procedures and their implementation.
127. However, the Committee notes that recommendations made in reports initiated several years ago are still being worked on. For example, in relation to the Review of Governance in the Housing Executive commissioned by Minister Attwood in 2010, the outstanding recommendations were only implemented in the latter half of 2014. This is despite the establishment of an Oversight Implementation Group, chaired by the Permanent Secretary and which included senior DSD housing officials, which was tasked with, among other things, providing monthly examination of the implementation of the recommendations.
128. However, this group last met on 16 November 2011 at which point it was decided that the monitoring of the implementation of the outstanding recommendations would take place through quarterly accountability meetings.
129. The Committee believes that the implementation of recommendations stemming from future reports into these issues must be expedited in-line with an agreed timeframe.
130. The Committee welcomes the revised arrangements in respect of the NIHE’s Audit and Risk Assurance Committee and believes these are key to ensuring confidence in the independence of audit and corporate assurance reports. The Committee is content that inappropriate management challenge has been removed and the current arrangements offer more transparency.
131. The Committee recognise that the current management and board of the NIHE are working to re-establish public confidence in the organisation. However, it is evident that it will take some time before evidence can be produced to establish whether confidence in the revised systems and structures is warranted.
132. The Committee also notes the potential impact these reports may have had on NIHE staff morale and it therefore welcomes the Journey to Excellence programme which it hopes will re-establish a sense of staff pride in the NIHE as well as public confidence in the organisation.
133. The Committee will continue to monitor the NIHE’s progress in relation to its core activities. In particular the Committee will focus on the findings of the annual reports of the NIAO in respect of the delivery and governance of the NIHE’s routine and planned maintenance contracts.
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