Session 2007/2008

Sixth Report

PUBLIC ACCOUNTS COMMITTEE

Report on Use of Consultants

Together with the Minutes of Proceedings of the Committee relating
to the Report and the Minutes of Evidence

Ordered by The Public Accounts Committee to be printed 10 January 2008
Report: 16/07/08R Public Accounts Committee

PUBLISHED BY AUTHORITY OF THE NORTHERN IRELAND ASSEMBLY
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Public Accounts Committee
Membership and Powers

The Public Accounts Committee is a Standing Committee established in accordance with Standing Orders under Section 60(3) of the Northern Ireland Act 1998. It is the statutory function of the Public Accounts Committee to consider the accounts and reports of the Comptroller and Auditor General laid before the Assembly.

The Public Accounts Committee is appointed under Assembly Standing Order No. 51 of the Standing Orders for the Northern Ireland Assembly. It has the power to send for persons, papers and records and to report from time to time. Neither the Chairperson nor Deputy Chairperson of the Committee shall be a member of the same political party as the Minister of Finance and Personnel or of any junior minister appointed to the Department of Finance and Personnel.

The Committee has 11 members including a Chairperson and Deputy Chairperson and a quorum of 5.

The membership of the Committee since 9 May 2007 has been as follows:

Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Willie Clarke *
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin
Ms Dawn Purvis

* Mr Micky Brady replaced Mr Willie Clarke on 1st October 2007

List of abbreviations used in the Report

Appendix 4:

List of Witnesses

List of Abbreviations used in the Report

DFP Department of Finance and Personnel

DRD Department for Regional Development

COPE Centres of Procurement Expertise

NIW Northern Ireland Water

C&AG Comptroller and Auditor General

SIB Strategic Investment Board

SMEs Small and medium-sized businesses

IF Information flow

Executive Summary

Introduction

1. Northern Ireland government departments purchase professional services from a wide range of consultancy organisations in areas such as management, finance, engineering and environmental advice, human resources, corporate governance and internal audit support services.

2. The cost of consultancy expenditure to Northern Ireland departments and their related bodies is substantial and is rising each year. Over the 5 year period to 2007, spending on consultants has more than doubled and, in 2006-07 alone, amounted to £42 million. Despite the scale of this expenditure, it is clear that this spending is not always well managed and best practice guidance is not being adhered to across the public sector.

Central Oversight of Consultancy

3. Department of Finance and Personnel (DFP) and Department for Regional Development (DRD) attributed the more recent rises to a number of factors including the Public Sector Reform Agenda, the introduction of Resource Accounting and a number of large scale Public Private Partnership infrastructure projects in the area of roads and water. While recognising the demands these initiatives have placed on the public sector, the Northern Ireland Civil Service is in danger of becoming dependent on consultants and risks losing the ability to be an intelligent client and purchase services effectively.

4. The Committee recommends that in future, departments must ensure that they give comprehensive and consistent information on consultancy expenditure in response to requests from elected representatives. Information put into the public domain must be complete and should clearly delineate all categories of consultancy costs (see paragraph 19).

5. The Committee recommends that DFP produces an annual compliance report, summarising the results of its test drilling exercise. As a minimum, this report should assess the extent to which departments have complied with the requirements to undertake business cases, competitive tendering and post-project evaluation. The Committee would also like the C&AG to consider revisiting this area, say in the next 18 months, by which time we expect to see significant improvement in compliance with best practice guidance (see paragraph 22).

6. In its guidance to departments, DFP distinguishes between external consultancy, internal consultancy, research, contracted services and staff substitution. This presentation has led to confusion. Consequently, it is disappointing to note that the expenditure figures provided to this Committee, and in answer to various Assembly Questions, were inconsistent.

7. Given the magnitude of consultancy expenditure by Northern Ireland departments, it is imperative that they comply fully with good practice to ensure the spending is justified and delivers value for money. At the time of the Comptroller &Auditor General’s report, however, it was clear that DFP’s guidance was consistently ignored by departments. In recognition of this, DFP has committed to undertaking increased test drilling of departments’ consultancy expenditure. The Committee welcomes this commitment and it is right that the focus of DFP’s efforts should be on ensuring compliance with existing guidance.

8. Procuring external expertise carries with it a particular risk of perceived conflicts of interest and impropriety. In this regard, the Committee sought assurance from DFP on the arrangements in place to safeguard the public interest in a number of specific areas relating to the Strategic Investment Board, the Planning Service and the receipt of gifts and hospitality. DFP provided assurances on each of these areas. However the existence of guidance and codes of practice can never eliminate the attendant risks, as they depend on full implementation by individual staff. Regular testing of controls and transparent reporting of results are therefore of particular importance to avoid perceptions of conflicts.

Ensuring Value for Money

9. When procuring consultancy services, it is important that departments establish a clear business need, review options for meeting that need and quantify the prospective cost and benefits associated with those options. Proposed use of consultants should be supported by an appropriate business case. The Committee is therefore surprised by the frequency with which departments failed to produce business cases. The very real concern for the Committee is that departments do not have sufficient staff expertise in this area.

10. Competitive tendering offers the best means of ensuring value for money but too many consultancy contracts are still let without competition. Given the obvious pitfalls of non competitive tendering, the extent to which tenders are awarded without competition is unacceptable yet there is a reluctance to set a target to reduce it.

11. Competitive tendering is particularly effective if it is managed by Centres of Procurement Expertise (COPE) to ensure that professional skills are brought to the procurement process. Despite this, DRD acknowledged that £2 million of its consultancy contracts were not awarded through a COPE.

12. Frequent and large-scale increases in contract costs raise doubts about the standard of project appraisal, management and control; are often non-competitive in nature; and can hinder the achievement of value for money. The DRD submission identified enormous overspends on its six largest consultancy projects. By extending contracts in this manner, it is difficult to see how departments have been effective in protecting the public purse. This cannot be tolerated. Departments risk becoming passive purchasers and they must consider ways of avoiding wholesale contract extensions.

13. Despite being a DFP requirement, the extent to which post-project evaluations are completed is still not good enough. On current practices, it is clearly impossible for departments to gauge the performance of consultants. Furthermore, there is no evidence that departments are using the results of post-project evaluations to share experiences or to identify and weed out poorly performing consultants. In this respect, the Committee welcomes DFP’s commitment to become the custodians of more information on the performance of consultants and to ensure its Framework Agreements database is updated regarding these concerns.

14. This Committee has heard evidence in previous sessions where the performance of consultants has actually cost the public purse additional expense, yet there has been no recompense. DFP and DRD were unable to provide a single example where the results of a post-project evaluation had been used to recover losses arising from poor consultancy advice.

15. Given that NI departments and related bodies spend £42 million annually on external consultancy, there is significant potential for them to identify opportunities to collaborate and to harness their collective purchasing power to get better deals. However there is limited evidence that departments are producing annual external consultancy plans, which are key to sharing the requisite information.

Summary of Recommendations

Central Oversight of Consultancy

1. The cost of external consultancy to Northern Ireland Civil Service departments and related bodies more than doubled in five years and looks like it is out of control. It must not be allowed to continue to rise at this rate and the Committee recommends that DFP should work with departments and produce a formal strategy to reduce their dependency on external consulting (see paragraph 9).

2. To develop in-house consultancy resources, the Committee recommends that the Northern Ireland Civil Service should identify large-scale consultancy work required in the medium to long term, identify the skills necessary to undertake this work and devise a strategy to plug any skills gaps identified (see paragraph 12).

3. The Committee expects DFP, through Account NI, to reintroduce a central database, with appropriate quality control arrangements. This should produce comprehensive and accurate data on all consultancy expenditure at the touch of a button (see paragraph 16).

4. The Committee recommends that DFP produces an annual compliance report, summarising the results of its test drilling exercise. As a minimum, this report should assess the extent to which departments have complied with the requirements to undertake business cases, competitive tendering and post-project evaluation. The Committee would also like the C&AG to consider revisiting this area, say in the next 18 months, by which time we expect to see significant improvement in compliance with best practice guidance (see paragraph 19).

5. The Committee recommends that DFP produces an annual compliance report, summarising the results of its test drilling exercise. As a minimum, this report should assess the extent to which departments have complied with the requirements to undertake business cases, competitive tendering and post-project evaluation. We would also like the C&AG to consider revisiting this area, say in the next 18 months, by which time we expect to see significant improvement in compliance with best practice guidance (see paragraph 22).

6. It is important that there is full clarity about the position of Northern Ireland Water (NIW). DRD completely owns the company and the Northern Ireland taxpayers pick up the bill for any failure to ensure value for money in NIW. The Committee therefore recommends that DFP guidance should apply in full to NIW’s use of consultants (see paragraph 24).

7. It is important that public officials, including board members, avoid perceptions of conflicts of interest or impropriety. The Committee recommends that departments and related bodies must have appropriate controls in place, test the efficacy of these controls on a regular basis and should report the results in an open and transparent manner, for example through their Audit Committees (see paragraph 30).

Ensuring Value for Money

8. Departments must complete business cases of an appropriate quality to justify using consultants and to define the scope and outputs. The Committee recommends that, for all major consultancy projects (over £75,000), Centres of Procurement Expertise are always used to assist departments and related bodies in preparing robust business cases (see paragraph 34).

9. The Committee is amazed to find that departments can breach delegated limits yet avoid sanction if they receive retrospective approval from DFP. The Committee recommends that this bad practice must stop as it sends the wrong signals to departments who have, in effect, incurred irregular expenditure (see paragraph 36).

10. Procuring consultancy by non-competitive tendering makes it difficult to demonstrate that value for money has been achieved. The Committee, like DRD, has a predisposition very much against non-competitive tenders and considers it would be prudent to set targets to minimise its use. Any decisions to procure without competitive tendering above a minimal threshold must be reported to the respective Audit Committees (see paragraph 39).

11. The Committee is disturbed by DRD’s suggestion that the risks from non-competitive tenders are mitigated if authorised by senior management. As noted above, non-competitive tendering should be very much the exception but where it is considered it should be authorised only by Accounting Officers who will be aware that they may be required to explain such decisions to this Committee (see paragraph 41).

12. The Committee strongly advocates the use of Centres of Procurement Expertise and recommends that all contracts are negotiated through them by procurement experts (see paragraph 43).

13. The Committee recommends that the Central Procurement Directorate takes the lead in developing improved contracts in which the risks of cost escalation are shared more evenly with consultants. It should seek to pilot a greater degree of performance related contracts and benchmark against traditional fixed cost contracts (see paragraph 47).

14. Post-project evaluations must be completed in all cases, be of appropriate quality and highlight facets of the consultants’ performance which may be of interest for future assignments. Departments must follow the guidance more rigorously and the Committee expects DFP to monitor this issue and believes that Audit Committees can play a key role in promoting compliance (see paragraph 49).

15. The Committee expects to see all Centres of Procurement Expertise improve their databases to capture the results of post-project evaluations and to disseminate performance information. If post-project evaluations show recurrent poor performance this could lead to consultants being removed from Framework Agreements (see paragraph 51).

16. Post-project evaluations should offer the potential to recover fees from a consultant who has not performed. They must assess the quality of advice obtained and, where it is flawed, action should be taken to seek compensation from consultants (see paragraph 53).

17. Protecting the public purse should always be a paramount consideration in public sector procurement. The Committee recommends Framework Agreements should, wherever possible, be used in the procurement of consultancy. Departments must also exploit their collective purchasing power to greater effect by exchanging information regularly on planned consultancy assignments and identifying specific opportunities for joint procurement (see paragraph 57).

Introduction

1. The Public Accounts Committee met on 16 November 2007 to consider the Comptroller and Auditor General’s (C&AG’s) report: “Use of Consultants” (NIA 35/03 HC 641, Session 2003-04). The Committee also considered updated information on consultancy expenditure provided by the Department of Finance and Personnel (DFP) and the Department for Regional Development (DRD).

2. The witnesses were:

Mr Bruce Robinson, Accounting Officer, Department of Finance and Personnel.
Mr David Sterling, Accounting Officer (Acting), Department for Regional Development.
Mr David Orr, Director, Central Procurement Directorate, Department of Finance and Personnel.
Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.
Mr John Dowdall CB, Comptroller and Auditor General (C&AG).

3. Consultancy expenditure reported by Northern Ireland Government departments and related bodies is significant and has increased considerably in recent years. Over the 5 year period to 2007, spending on consultants has more than doubled and, in 2006-07 alone, amounted to £42 million.

4. Despite the scale of this expenditure, it is clear that this spending is not always well managed and best practice guidance is not being adhered to across the Public Sector. The Committee found the evidence of the witnesses helpful and particularly welcomed the DFP Accounting Officer’s acknowledgement of the need for improvement and was impressed with his commitment to addressing three main issues. These involve obtaining more detailed and better quality information and undertaking a greater degree of test drilling; improving the use of the Central Procurement Directorate’s expertise; and enhancing the quality of DFP’s internal business consultancy service.

5. In taking evidence on the Comptroller and Auditor General’s report, the Committee focussed on two main issues. These were:

the role of DFP in providing oversight of departmental consultancy spend, monitoring expenditure and ensuring compliance with its guidance; and
the extent to which departments comply with good practice guidance and achieve value for money in their use of consultants.

Central Oversight of Consultancy

Controlling Overall Consultancy Expenditure

6. The cost of consultancy expenditure to Northern Ireland departments and their related bodies is substantial and is rising each year. At the time of the C&AG’s report, DFP indicated that the increase in expenditure was primarily due to devolution and also the introduction of resource accounting.

7. Since the C&AG’s report, consultancy expenditure has continued to show a significant increase. DFP and DRD attributed the more recent rises to a number of factors such as the introduction of a centralised accounting system (Account NI), the Review of Public Administration, the roll-out of Workplace 2010, Water Reform and a number of large scale Public Private Partnership infrastructure projects in the area of roads and water.

8. While recognising the demands these initiatives have placed on the public sector, the Committee agrees with the former Minister for Regional Development that the Northern Ireland Civil Service is in danger of becoming dependent on consultants and risks losing the ability to be an intelligent client and purchase services efficiently.

Recommendation 1
9. The cost of external consultancy to Northern Ireland Civil Service departments and related bodies more than doubled in five years and looks like it is out of control. It must not be allowed to continue to rise at this rate and the Committee recommends that DFP should work with departments and produce a formal strategy to reduce their dependency on external consulting.

Developing NICS Skills

10. Consultancy projects should be designed to ensure the transfer of skills from consultants to in-house staff. This is not happening effectively. DFP recognises that action in this area is required and the Committee welcomes its assertion that it has re-examined its internal business consultancy service and has successfully moved into areas such as policy appraisal, strategy development and corporate governance.

11. However these are exactly the types of area in which the Committee would expect civil servants to be practised. Departments do not, therefore, appear to be building an efficient, well-skilled Civil Service and internal staff are in danger of being left behind as private sector consultants are increasingly charged with designing and managing public services.

Recommendation 2
12. To develop in-house consultancy resources, the Committee recommends that the Northern Ireland Civil Service should identify large-scale consultancy work required in the medium to long term, identify the skills necessary to undertake this work and devise a strategy to plug any skills gaps identified.

Improving Data Systems and Quality

13. It is important that management information systems used to report departmental expenditure are soundly based in order to allow robust control and monitoring. The C&AG’s report, however, raised a number of concerns about the completeness and accuracy of DFP’s consultancy database. DFP subsequently discontinued its central consultancy database and delegated monitoring and auditing responsibilities to individual departments.

14. In the Committee’s view, however, this delegation of responsibilities has not led to improved reporting. Although DFP commented that it takes all reasonable steps to ensure that the information it provides is accurate, it conceded that there were still problems with data quality and could not give any cast-iron guarantees on the accuracy of the information. This lack of confidence in the figures is very disturbing and must be addressed. The Committee expects DFP to have authoritative information on such an important element of public expenditure.

15. In this regard, the Committee notes DFP’s assurances that it intends to obtain more information from departments and that the introduction of Account NI will provide the capability to ensure all consultancy expenditure is recorded.

Recommendation 3
16. The Committee expects DFP, through Account NI, to reintroduce a central database, with appropriate quality control arrangements. This should produce comprehensive and accurate data on all consultancy expenditure at the touch of a button.

17. In its guidance to departments, DFP distinguishes between external consultancy, internal consultancy, research, contracted services and staff substitution. DFP and DRD admitted however that, in the provision of information to the Assembly, the presentation could have led to confusion. The Committee was amazed that DRD excluded some £29 million of design consultancy from its submission. As a consequence of this confusion there are concerns that errors may have been made by the Department in answering to Parliamentary or Assembly Questions.

18. A striking illustration of this is evident from the fact that DRD consultancy expenditure provided in response to an Assembly Question was substantially different from that provided to this Committee. Elected representatives simply want details of all consultancy expenditure incurred. That was not the information presented. While welcoming DRD’s acknowledgement that it was remiss in its presentation of information, it is disappointing that the expenditure figures provided to this Committee, and in answer to various Assembly Questions, were inconsistent.

Recommendation 4
19. The Committee recommends that in future, departments must ensure that they give comprehensive and consistent information on consultancy expenditure in response to requests from elected representatives. Information put into the public domain must be complete and should clearly delineate all categories of consultancy costs.

Ensuring Compliance with DFP Guidance

20. Given the magnitude of consultancy expenditure by Northern Ireland departments, it is imperative that they comply fully with good practice to ensure the spending is justified and delivers value for money. At the time of the C&AG’s report, however, it was clear that DFP’s guidance was widely ignored by departments. In too many cases, departments were not undertaking economic appraisals, were not tendering competitively and were not conducting post-project evaluations.

21. The Committee welcomes DFP’s recognition that it needs to improve its monitoring of this situation and its commitment to do so through increased test drilling of departments’ consultancy expenditure. We agree with the DFP Accounting Officer that the main problem relates to implementation of existing guidance rather than with the need to introduce further guidance. It is right, therefore, that the focus of DFP’s efforts should be on ensuring compliance.

Recommendation 5
22. The Committee recommends that DFP produces an annual compliance report, summarising the results of its test drilling exercise. As a minimum, this report should assess the extent to which departments have complied with the requirements to undertake business cases, competitive tendering and post-project evaluation. The Committee would also like the C&AG to consider revisiting this area, say in the next 18 months, by which time we expect to see significant improvement in compliance with best practice guidance.

23. A specific area of concern is the revelation that DFP guidance does not apply to Northern Ireland Water (NIW). Although DRD indicated that it had impressed upon NIW the importance of operating in the spirit of the guidance, this is of little comfort to the Committee as is the comment by the DRD Accounting Officer that “it more or less owns the company”. It has subsequently emerged that the company has already spent the astounding figure of £16 million on consultancy in the first 6 months of 2007-08.

Recommendation 6
24. It is important that there is full clarity about the position of Northern Ireland Water (NIW). DRD completely owns the company and the Northern Ireland taxpayers pick up the bill for any failure to ensure value for money in NIW. The Committee therefore recommends that DFP guidance should apply in full to NIW’s use of consultants.

Managing Conflicts of Interest

25. Procuring external expertise carries with it a particular risk of perceived conflicts of interest and impropriety. In this regard, the Committee sought assurance from DFP on the arrangements in place to safeguard the public interest in a number of specific areas.

26. First, in the Strategic Investment Board (SIB), the Committee queried whether Members also work for firms that have been awarded consultancy contracts. In a subsequent written submission, DFP confirmed that one of SIB’s non executive directors is the Chief Executive of Partnerships UK (PUK). However DFP indicated that the non executive director has played no part whatsoever when SIB has engaged PUK staff and that all payments by SIB to PUK are included in its accounts. DFP also assured the Committee that all contracts were procured competitively, awarded through the Central Procurement Directorate and that non executive directors were not involved in awarding contracts and could not therefore influence the awarding of contracts (see Appendix 3).

27. Second, in the Planning Service, a number of trained, professional staff are recruited each year by private consultancy firms and there is a risk that those staff will work on the same projects as they worked on in the public sector. DFP’s written submission noted that the NICS Staff Handbook and the Planning Service’s Conduct Code advise staff of the standard of behaviour expected and the disciplinary consequences. It also highlighted that staff who intend to take up appointments outside the Civil Service are required to submit a detailed application form to the Department of the Environment. However DFP acknowledged that, while these provisions assist in setting standards, they cannot discover breaches where staff do not disclose them (see Appendix 3).

28. Third, in a more general context, the receipt of gifts or hospitality by public servants can create the impression of bias in the letting of contracts. Given that consultancy firms are in the business of making money, often their hospitality is not confined to cheap ballpoint pens and can be lavish. DFP acknowledged the adverse publicity about hospitality being bestowed on civil servants. In response, it outlined that it had issued updated guidance, that procedures are in place and that records are kept up to date.

29. The Committee notes the assurances given by DFP in relation to each of these areas. However the existence of guidance and codes of practice can never, on their own, eliminate the attendant risks, as they depend on full implementation by individual staff.

Recommendation 7
30. It is important that public officials, including board members, avoid perceptions of conflicts of interest or impropriety. The Committee recommends that departments and related bodies must have appropriate controls in place, test the efficacy of these controls on a regular basis and should report the results in an open and transparent manner, for example through their Audit Committees.

Ensuring Value for Money

Justifying the Use of Consultants

31. In spending public resources, it is important that departments establish a clear business need, review options for meeting that need and quantify the prospective cost and benefits associated with those options. In line with best practice guidance, consultancy projects estimated to cost in excess of £10,000 should be supported by an appropriate business case. The C&AG’s report identified, however, that in almost three quarters of cases examined, no business case was completed.

32. While agreeing that the level of failure identified at that time was unacceptable, DFP offered assurances that the situation had since improved. It highlighted that all contracts over £75,000 are subject to review by DFP and also outlined its plans to test drill business cases below this threshold. Nevertheless, the Committee is surprised by the frequency with which departments failed to produce business cases.

33. Even in cases where a business case was produced, often it had not been to an appropriate standard. The poor quality of business cases is illustrated by Case Study B in the C&AG’s report where costs have escalated out of control. The very real concern for the Committee is that departments do not have sufficient staff expertise in this area.

Recommendation 8
34. Departments must complete business cases of an appropriate quality to justify using consultants and to define the scope and outputs. The Committee recommends that, for all major consultancy projects (over £75,000), Centres of Procurement Expertise are always used to assist departments and related bodies in preparing robust business cases.

35. The Committee is concerned by the granting of retrospective approval by DFP where departments had not followed guidance. Case study A of the C&AG’s report represented one of the worst examples of bad practice, with a department failing to prepare a business case and, although costs exceeded the £75,000 threshold, it did not obtain Ministerial or DFP approval. DFP indicated that, in cases such as this, departments will seek retrospective approval.

Recommendation 9
36. The Committee is amazed to find that departments can breach delegated limits yet avoid sanction if they receive retrospective approval from DFP. The Committee recommends that this bad practice must stop as it sends the wrong signals to departments who have, in effect, incurred irregular expenditure.

Awarding Contracts Competitively

37. Competitive tendering offers the best means of ensuring value for money and avoiding the possible perception of impropriety in public procurement. Although the situation has improved since the C&AG’s report, too many contracts are still let without competition.

38. Given the obvious pitfalls of non-competitive tendering, the extent to which tenders are awarded without competition is unacceptable. DFP and DRD agreed that the current level is too high but there is a reluctance to set a target to reduce it. Given that non-competitive tendering should only be used where there are overwhelming reasons to do so, the Committee is very surprised that over 10% of consultancy contracts are awarded in this manner. This strongly implies that they are, in fact, often being used for less than overwhelming reasons.

Recommendation 10
39. Procuring consultancy by non-competitive tendering makes it difficult to demonstrate that value for money has been achieved. The Committee, like DRD, has a predisposition very much against non-competitive tenders and considers it would be prudent to set targets to minimise its use. Any decisions to procure without competitive tendering above a minimal threshold must be reported to the respective Audit Committees.

40. DFP and DRD both argued that, in certain cases, non-competitive tendering was justified (for example where the work was sensitive, required particular expertise or had to be done very quickly) and provided examples where they had appointed consultants in this manner. In addition, DRD emphasised that non competitive tenders could only be undertaken where they are approved at a senior level in DRD, as if this provided a protection for DRD’s interests.

Recommendation 11
41. The Committee is disturbed by DRD’s suggestion that the risks from non-competitive tenders are mitigated if authorised by senior management. As noted above, non-competitive tendering should be very much the exception but where it is considered it should be authorised only by Accounting Officers who will be aware that they may be required to explain such decisions to this Committee.

42. Competitive tendering is particularly effective if it is managed by Centres of Procurement Expertise (COPE) which ensures that professional skills are brought to the procurement process. The use of non procurement staff to let contracts poses risks to value for money, yet DRD acknowledged that £2 million of its consultancy contracts were not awarded through a COPE.

Recommendation 12
43. The Committee strongly advocates the use of Centres of Procurement Expertise and recommends that all contracts are negotiated through them by procurement experts.

Managing Contracts and Controlling Costs

44. Frequent and large-scale increases in contract costs raise doubts about the standard of project appraisal, management and control; are often non-competitive in nature; and can hinder the achievement of value for money. The C&AG’s Report identified that there were extensions and/or cost overruns in 45% of contracts. Updated information provided by DRD, suggests that this situation has not improved. Their submission identified enormous overspends on its six largest consultancy projects, despite the fact that each had been subject to a business case and competitively tendered.

45. DRD accepted that this situation looked bad and was bad, but contended that, in each case, issues had arisen which had made the consultancy assignment more complicated. Nevertheless, the Committee was astonished to hear that, even with these huge cost overruns, post completion evaluations on the two completed projects concluded that value for money had been achieved.

46. By extending contracts in this manner, it is difficult to see how departments have been effective in protecting the public purse. This behaviour sends a signal to consultants that they are on to a good thing and undoubtedly tempts them to generate more, perhaps unnecessary, work from the contract. Such reactive contract management by departments suggest they are like lambs to the slaughter, and makes them hugely vulnerable. The Committee is alarmed at the incidence of contract extensions and the additional financial costs these impose on the public sector. This cannot be tolerated. Departments risk becoming passive purchasers and they must consider ways of avoiding wholesale contract extensions.

Recommendation 13
47. The Committee recommends that the Central Procurement Directorate takes the lead in developing improved contracts in which the risks of cost escalation are shared more evenly with consultants. It should seek to pilot a greater degree of performance related contracts and benchmark against traditional fixed cost contracts.

Learning and Disseminating Lessons

48. Despite being a DFP requirement, the C&AG’s report highlighted that in 88% of contracts, no post-project evaluation had been completed. Although DFP indicated that the situation has improved subsequently, it is still not good enough. On current practices, it is clearly impossible for departments to gauge the performance of consultants. Given the enormous sums involved, it is indefensible that departments have done so little to confirm the achievement of value for money.

Recommendation 14
49. Post-project evaluations must be completed in all cases, be of appropriate quality and highlight facets of the consultants’ performance which may be of interest for future assignments. Departments must follow the guidance more rigorously and the Committee expects DFP to monitor this issue and believes that Audit Committees can play a key role in promoting compliance.

50. Furthermore, there is no evidence that departments are using the results of post-project evaluations to share experiences or to identify and weed out poorly performing consultants. There is no register of those consultants who fail to deliver and the information on consultants’ performance, held by the Central Procurement Directorate, is neither comprehensive nor complete. In order to act as an intelligent purchaser, it is essential that consultant performance is assessed and that information is widely shared. In this respect, the Committee welcomes DFP’s commitment to become the custodians of more information on the performance of consultants and to ensure its Framework Agreements database is updated regarding these concerns.

Recommendation 15
51. The Committee expects to see all Centres of Procurement Expertise improve their databases to capture the results of post-project evaluations and to disseminate performance information. If post-project evaluations show recurrent poor performance this could lead to consultants being removed from Framework Agreements.

52. This Committee has heard evidence in previous sessions (such as the Belfast Bangor Rail Upgrade and PFI Land Deals) where the performance of consultants has actually cost the public purse additional expense, yet there has been no recompense. The fact that DFP and DRD were unable to provide a single example where the results of a post-project evaluation had been used to recover losses arising from poor consultancy advice, indicates an unhealthy relationship in which consultants cannot lose from public contracts no matter how poor their performance.

Recommendation 16
53. Post-project evaluations should offer the potential to recover fees from a consultant who has not performed. They must assess the quality of advice obtained and, where it is flawed, action should be taken to seek compensation from consultants.

Using Collaborative Purchasing Power

54. Given that NI departments and related bodies spend £42 million annually on external consultancy (and significantly more if design and other consultancy expenditure is included), there is significant potential for them to identify opportunities to collaborate and to harness their collective purchasing power to get better deals. To do this effectively, departments need to share information and communicate openly.

55. The C&AG’s report provided a classic case of things having gone wrong, when an IT consultant was employed to produce an e-business strategy for a single department and there was a very substantial overspend in the project from £30,000 to £183,000. As all departments were required to produce these strategies, the Committee believes that joint commissioning in this instance could have utilised their collective buying power to good effect.

56. DFP noted that the purpose of Framework Agreements is to achieve this collective approach and that shared services projects also represent a significant step in aggregating and bringing together work. DFP also noted that departments were expected to produce an annual external consultancy plan but admitted that this was at an early stage and there was limited evidence of these plans coming through.

Recommendation 17
57. Protecting the public purse should always be a paramount consideration in public sector procurement. The Committee recommends Framework Agreements should, wherever possible, be used in the procurement of consultancy. Departments must also exploit their collective purchasing power to greater effect by exchanging information regularly on planned consultancy assignments and identifying specific opportunities for joint procurement.

Appendix 1 Minutes of Proceedings of the Committee Relating to the Report

Thursday, 15 November 2007
Confex 2 & 3, Stormont Hotel, Belfast

Present:
Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Mickey Brady
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin

In Attendance:
Mrs Cathie White (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mrs Nicola Shephard (Clerical Supervisor)
Mr John Lunny (Clerical Officer)

Apologies:
Ms Dawn Purvis

2.02pm The meeting went into public session.

3. Evidence on the NIAO Report ‘Use of Consultants’

The Committee took oral evidence on the NIAO report ‘Use of Consultants’ from Mr Bruce Robinson, Accounting Officer, Department of Finance and Personnel (DFP), Mr David Orr, Central Procurement Directorate, DFP, Mr David Thomson, Head of Supply, DFP, and Mr David Sterling, Accounting Officer, Department for Regional Development. The witnesses answered a number of questions put by the Committee.

The Committee requested that the witnesses should provide additional information on issues raised by members during the evidence session to the Clerk.

3.16pm Mr Hamilton left the meeting.
3.22pm Mr McGlone left the meeting.
4.01pm Mr McLaughlin left the meeting.

4.02pm The evidence session finished and the witnesses left the meeting.

[EXTRACT]

Thursday, 10 January 2008
Room 144, Parliament Buildings

Present:
Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Mickey Brady
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Ms Dawn Purvis

In Attendance:
Mrs Cathie White (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mrs Nicola Shephard (Clerical Supervisor)
Mr John Lunny (Clerical Officer)

Apologies:
Mr Patsy McGlone
Mr Mitchel McLaughlin

The meeting opened at 2.02pm in public session.

2.04pm Mr Hilditch joined the meeting.
2.27pm The meeting went into closed session.

8. Consideration of Draft Committee Report on Use of Consultants.

Members considered the draft report paragraph by paragraph. The witnesses attending were Mr John Dowdall CB, C&AG, Mr Eddie Bradley, Director of Value for Money, and Mr Joe Campbell, Audit Manager.

The Committee considered the main body of the report.

Paragraphs 1 – 7 read and agreed.
Paragraphs 8 and 9 read, amended and agreed.
Paragraphs 10 – 13 read and agreed.
Paragraph 14 read, amended and agreed.
Paragraphs 15 and 16 read and agreed.
Paragraphs 17 and 18 read, amended and agreed.
Paragraphs 19 – 22 read and agreed.
Paragraphs 23 and 24 read, amended and agreed.
Paragraph 25 read and agreed.
Paragraphs 26 – 27 read, amended and agreed.
Paragraphs 28 – 31 read and agreed.
Paragraphs 32 and 33 read, amended and agreed.
Paragraphs 34 – 37 read and agreed.
Paragraphs 38 – 41 read, amended and agreed.
Paragraphs 42 and 43 read and agreed.
Paragraphs 44 and 45 read, amended and agreed.
Paragraphs 46 and 47 read and agreed.
Paragraph 48 read, amended and agreed.
Paragraphs 49 and 50 read and agreed.
Paragraphs 51and– 52 read, amended and agreed.
Paragraphs 53 – 57 read and agreed.
The Committee considered the Executive Summary of the report.
Paragraphs1 and 2 read and agreed.
Paragraph 3 read, amended and agreed.
Paragraph 4 read and agreed.
Paragraphs 5 and 6 read, amended and agreed.
Paragraphs 7 and 8 read and agreed.
Paragraph 9 read, amended and agreed.
Paragraphs 10 and 11 read and agreed.
Paragraph 12 read, amended and agreed.
Paragraph 13 read and agreed.
Paragraph 14 read, amended and agreed.
Paragraph 15 read and agreed.

Agreed: Members ordered the report to be printed.
Agreed: Members agreed that the updates from Department of Finance and Personnel and Department for Regional Development, together with the Chairperson’s letters requesting additional information to Mr Bruce Robinson and Mr David Sterling, and their responses would be included in the Committee’s report. Members also agreed that the grades in Appendix A of Mr Robinson’s response should be clarified.
Agreed: Members agreed to embargo the report until 00.01am on 7 February 2008, when the report would be officially released.

[EXTRACT]

Appendix 2 Minutes of Evidence

15 November 2007

Members present for all or part of the proceedings:
Mr John O’Dowd (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr Mickey Brady
Mr Jonathan Craig
Mr John Dallat
Mr Simon Hamilton
Mr David Hilditch
Mr Trevor Lunn
Mr Patsy McGlone
Mr Mitchel McLaughlin

Also in Attendance:
Mr John Dowdall CB, Comptroller and Auditor General

Witnesses:

Mr David Orr Mr Bruce Robinson Mr David Thomson		Department of Finance and Personnel
Mr David Sterling		Department for Regional Development

1. The Chairperson (Mr O’Dowd): We are here today for a public evidence session on the ‘Use of Consultants’ report from the Audit Office. I will pose some opening questions and then open the meeting to members. The question-and-answer session usually lasts around two hours, depending on the number of questions and the areas that we explore.

2. My first question is for Mr Robinson. All Government Departments, and, indeed, all Governments, use consultants in their work, on a range of advisory and support services. This report emanates from a period when usage of consultants increased by 75%. In 2002-03, £18·6 million was spent on consultants; in 1998-99, it had been £10 million. That is the background to the report, and different aspects of it will be covered today.

3. As I have said, the report shows a 75% increase in spending on consultants in the five-year period to 2002-03. Paragraph 1.3 of the report attributes that large increase to the consequences of devolution. I note from updates that have been provided by the Department of Finance and Personnel (DFP) that consultancy expenditure has continued to rise, to in excess of £42 million in 2006-07. Can you explain that increase, and have you any concerns in connection with it?

4. Mr Bruce Robinson (Department of Finance and Personnel): Clearly, this is an important issue. As you have pointed out, expenditure on the use of consultants has grown. When the report was published, in 2004, the primary reason for that was the establishment of devolution. Another factor at that time was the move to introduce resource accounting. That started in 2002, and has continued at quite a high level. In the same area, faster closing of accounts has since been introduced, which we did not envisage at the time. In each of the last two years, the closing of accounts with the Audit Office has been occurring a month earlier. Next year, that will have to be completed by the end of July, which is a significant change. Also, we are in the early trial stages of whole-of-Government accounting, which is an important aspect of our work.

5. Since 2004, there has been significant expenditure on consultants within DFP itself in response to new initiatives that Ministers have established, most particularly the reform programme — the Account NI and Workplace 2010 projects. In addition, the review of public administration has occasioned a lot of consultancy work, particularly in the Departments of Health, Social Services and Public Safety, Education, and the Environment. Furthermore, there has been a lot of work around energy legislation and the energy market in the Department of Enterprise, Trade and Investment, which has contributed to the growth in expenditure on consultants there. In addition, the Department for Regional Development had the work on water reform.

6. Therefore, although at the time of the report the increased spending on consultants was largely attributed to devolution, the volume of work has continued since then. You asked whether I was concerned about it; we have to be careful with large items of expenditure, such as external consultancy, so as to ensure that value for money is secured for the taxpayer. That is a vitally important issue for the Department.

7. The Chairperson: Thank you for that answer. You have outlined a number of areas where there have been new ideas and structures in Government. The Committee welcomes innovation in the interests of providing a more accountable and greater service to the public. We welcome innovation in the interests of efficiency, and we accept that there is a need for risk management and for new innovative ideas to come from the Civil Service. However, is an efficient, well-skilled Civil Service being built? If consultants continue to be brought in across a range of topics to study policy areas and the new ideas that are coming through Government, will the Civil Service be left behind as private management consultancy services are promoted, instead of building its in-house capacity? I note that the former direct rule Minister John Spellar has commented on this.

8. Mr B Robinson: That is an important challenge that we constantly make to ourselves. If we were to allow that to happen, then, as well as being much more expensive, it would be a missed opportunity to offer our staff interesting work and development opportunities. The Department has developed a human resources development strategy that illustrates that. We have also introduced a programme of professional skills for Government.

9. I made reference to the challenges that we face in producing resource accounts and all of the issues in faster closing. The Department has continued to use consultants, but equally it has continued to build its internal capacity to deal with that. In the last few years, the Department has recruited a significant number of professionally-qualified accountants, and has launched an initiative to offer professional training to its staff. The Department recognises that there are a number of areas that require action; the new initiatives are coming very quickly, and it takes time to build up the capacity to deal with them.

10. The Department has re-examined its internal consultancy service. The business consultancy service, as it is called, had been carrying out work on a narrow range of issues — mostly organisational development work — until around 18 months ago, and was not focused at the level that the Department wanted to see it at. The business consultancy service analysed the work that was going out to consultants, and identified a number of potential areas where they could take that work on. It has successfully moved into areas such as policy appraisal and review, strategy development, and corporate governance. Although the numbers in the business consultancy service have decreased over the last year, the Department is doing work at a higher grade — more experienced people have been recruited, one of whom is from the private sector, to help us with that work.

11. The Department accepts the challenges. However, it will take time, and the speed with which Ministers — particularly the local Ministers, since devolution — want to move on those issues poses a challenge of building the capacity. Often, the Department has to recruit the required skills from the consultancy market while it develops and moves into that space. I entirely accept that it is an ongoing challenge.

12. The Chairperson: It was Mr Spellar — the former Regional Development and Social Development Minister — who said that the Civil Service had “become dependant on consultants” and lost “the ability to be an intelligent client”. What are your views on those comments, Mr Sterling?

13. Mr David Sterling (Department for Regional Development): I remember both John Spellar and those remarks well. I entirely agree with what the Minister said; we must guard against becoming reliant on consultants. The Department for Regional Development (DRD) has put controls and arrangements in place to ensure that that does not happen. DRD is very much in the business of investing in infrastructure to enhance the economy, promote social inclusion and tackle inequality. For example, last year the Department spent £690 million on works, goods and services — we procure a lot. Fortunately, in the last five to seven years there has been a considerable increase in the money available to the Department to invest.

14. The main problem that the Department faces is one of capacity; in order to invest wisely and deliver the outcomes that everyone wants, we have needed support. For example, last year £16 million was spent on external consultants, which looks very high as a headline. However, three quarters of that was associated with the water reform programme and the delivery of several large PPPs in water and roads. Those PPPs are delivering £630 million of investment in the roads, water and sewerage infrastructure.

15. Whatever the Committee might think about PFI as a policy, direct rule Ministers nonetheless wanted it pursued, and we are pursuing it. However, we do not have the financial and legal expertise to develop and manage those contracts. Having gone through those processes, the staff involved will be better equipped to manage those contracts in the future because of their close association with those advisers. Although the Executive are obviously in the process of conducting a major review of the water reform programme, but nonetheless, major changes were introduced, many of which are beneficial — and I think that everyone will agree with that.

16. I draw the Committee’s attention to one such change: by setting up a company that is outside of Government, the deliverer of water and sewerage services no longer enjoys Crown immunity from prosecution. Developing the policy around that was something on which we had to work closely with Department of the Environment officials and others in Government. We did that ourselves, but because of the very complex legal issues emanating from European directives on environmental compliance, we could not get the legal advice that we needed in Northern Ireland. Because of their involvement with those outside legal advisers, the people who helped to develop that policy will now be much better equipped to deal with policy development in that area in the future. That was a rather long answer; essentially, the problem is one of capacity to deal with increasing investment.

17. The Chairperson: I appreciate the fullness of your answer, and it is good to know that civil servants are learning from the consultants with whom they work, that their experience and knowledge are being brought back into the Civil Service, and that, as has been said, the Civil Service is building capacity to deal with the new demands and challenges from Government.

18. I met a delegation from UNISON a number of weeks ago. One of the questions that was put to me — and which is pertinent to today’s discussion — is how to ensure that the necessary protections are put in place as regards consultancy work. Take the Strategic Investment Board (SIB) as an example: a number of SIB members are also in consultancy firms that carry out work for SIB. What protections are built in to ensure that there is no public perception of wrongdoing in any of those practices?

19. Mr B Robinson: That is obviously a key issue. It is essential that all of that work be properly contracted and tendered and that proper value-for-money tests are carried out. The key is to use the procurement process and to ensure that competitions are held to secure the contracts. The report pointed to and recommended the greater use of consultancy frameworks as a way of ensuring that there is a very competitive environment. We have made significant progress on that. Over the last few years, we have seen a significant increase in the amount of consultancy work being let through the framework agreements. In fact, as the update that we provided to the Audit Office shows, 88% of consultancy work is being let through the framework agreements. That is an important component, as is the fact that the accounting officers involved have to assure themselves that value for money is being secured in the process.

20. Mr David Orr (Department of Finance and Personnel): Mr Robinson mentioned the Civil Service-wide frameworks that we have put in place, the purpose of which is to aggregate the demand for consultancy and to ensure that there are competitive rates. Indeed, we recently renewed the frameworks, and we found that, on average —

21. The Chairperson: It may be fairer to allow you to provide that information in writing. I want to know specifically about SIB: what safeguards are in place to ensure that there is no conflict of interest, given that members of the SIB may also have an interest in companies that carry out consultancy work for it? Perhaps it is unfair to ask you to provide full details of that at this stage, but I would be more than happy if you could forward the information in writing. I know that other members have questions about procurement, as well. Is that OK?

22. Mr B Robinson: The Department will get back to you on that, Chairman.

23. The Chairperson: Thank you.

24. Mr Craig: My question relates to paragraph 2.7 of the report. It states that 74% of the contracts that were examined by the Audit Office were not supported by the required formal business case. That goes to the heart of why the Committee was hugely surprised when it saw the report. The Committee is aware that the Department was investigated with regard to that matter not long ago. That contradicts ‘Departmental Responses to Recommendations in NIAO Reports’, dated 15 June 2006, which states on page 26 that:

“On the basis of information supplied to DFP, an average of 83% of consultancy contracts are now tendered competitively.”

25. Something just does not add up. Can the Department update the Committee on the current situation? How is the Department able to introduce controls in order to stop that from happening again? There is a confidence issue here.

26. Mr David Thomson (Department of Finance and Personnel): The member has mentioned two different matters: one is the business case issue, which is referred to in paragraph 2.7, and the other is the competitive tendering issue. Those issues are not necessarily the same. Perhaps I can pick up the first one —

27. Mr Craig: They are not necessarily the same. However, does the Department accept that there is a contradiction?

28. Mr Thomson: All business cases for consultancy assignments of over £75,000 must be approved by DFP; DFP examines all of those business cases. Departments cannot seek approval from DFP without a business case.

29. With regard to consultancy projects below that level, DFP research has estimated that there is around £5 million of — dare I say — routine consultancy expenditure every year. That means standard projects, not the big things that Mr Robinson referred to earlier. There are about 150 of those assignments each year. Of those, around 20% are below £10,000. DFP guidance states that full business cases are not required for projects below £10,000. Justification is required; however, I might expect that to consist of two A4 pages. Business cases must be proportionate. There are about 30 or 40 low-level consultancy contracts each year that are for less than £10,000. Although those should be approved and assessed, they do not require full business cases. That is why there are not business cases for 100% of projects. However, all the big contracts have them — certainly, anything coming to DFP for more than £75,000 will have a business case.

30. Indications that the Department has received are that around 90% of consultancy assignments are now subject to competitive tendering.

31. Mr Orr: The figure is 92% for 2005-06 and 89% for 2006-07. The Government accounting manual makes individual accounting officers responsible for satisfying themselves, when single-tender action is used, that it is justified. However, the Department has seen a reduction in the amount of single-tender action since the 2004 Audit Office report.

32. Mr B Robinson: I agree entirely with Mr Craig that the figures in the report are not of an acceptable standard. The level of supporting business cases is not acceptable. I accept entirely that one of the key tasks for DFP is to demonstrate that, both in the monitoring and control of expenditure and in ensuring that Departments follow through on those activities, there is actually evidence. I readily accept that one of the challenges facing DFP is to be able to give the Committee greater reassurance on those fronts.

33. Mr Craig: Thank you for that, and for the clarification about business cases. That leads on to my next question. Paragraph 2.9 of the report states that, even when business cases were produced, some still failed to comply with DFP guidance. In case study B, detailed on page 23 of the report, the costs seem to have escalated out of all control; from an estimated £200,000, they ended up at £500,000. It is worrying to think that that might be a common occurrence. More importantly, are the business cases that are presented to DFP accurate? How does the Department ensure that they are accurate and that they are not going to escalate out of control?

34. Mr B Robinson: That sort of example is clearly unsatisfactory. As I said, we must be able to reassure the Committee that the business cases are there. Going back to what David Thomson said, DFP needs to do more “test drilling” below the £75,000 level. Above the £75,000 level we see all of the material, and we are confident that that meets all the requirements. However, it is evident that we do not at present have all of the information on the business cases conducted between £10,000 and £75,000. In addition to having detailed information on those cases, we must do more monitoring work and ensure compliance, so that there are no more examples such as the one in the report.

35. Mr Craig: Are you satisfied that there is enough expertise in the Departments when it comes to estimating costs of consultants so that, as a Government, we will not get our eye wiped? Having looked at those examples, that is the only conclusion that one can come to.

36. Mr B Robinson: I am sure that we have the expertise to review the business cases and ensure that they stack up, because we are already doing that for the larger cases. I do not have concerns on that front. However, we are not up to the mark in relation to the information that we collect from Departments or the degree of checking — the test drilling. We need to do more than we have been doing. I acknowledge that openly.

37. Mr Craig: Case study A, again on page 23, particularly worried me. Not only did the Department in question not prepare a business case in this instance, but it failed to secure ministerial or DFP approval, as per your guidelines, despite the overall costs being in excess of £75,000. In hindsight, as the accounting officer, what action would you take against a Department that did not follow the rules, and, more importantly, did not inform the Minister in charge? What can or will be done about that? What controls or sanctions can be applied to a Department in such an instance?

38. Mr B Robinson: There is no question that that is one of the worst examples of bad practice that the report points to.

39. It is important for us to ensure that any relevant information is available at the time. That comes back to my point about test drilling and following up quickly on business cases. Our supply relationship with Departments, as well as DFP exercises, which check that value for money has been achieved, means that the Departments concerned will — at the very least — have to seek retrospective approval from the relevant Ministers and, if necessary, from DFP. Those measures will mean that they will have to improve their future performances. Although substantial progress has been made on several fronts since the report was published in 2004, we have not made as much progress as we should have where business cases are concerned. As we issue to Departments the new guidance that will require more detailed annual returns to be made on all work, I hope that the supply teams will have an opportunity to follow them up in the course of their work with Departments and point to any shortcomings. If the shortcomings are serious, DFP will raise them with the departmental accounting officers to ensure that that situation does not reoccur. If necessary, retrospective approval will have to be sought.

40. Mr Thomson: No Department can spend without DFP approval, and one option that we can take is to delegate that approval. Any spending above a delegated limit is irregular expenditure, and, during the audit process, the Comptroller and Auditor General must draw any such expenditure to our attention. Irregular expenditure cannot be charged to the vote. Therefore, any Department that incurs expenditure over its delegated limit without approval will have to seek retrospective approval from DFP, otherwise the expenditure will not go into the accounts. Rigorous checks exist in that area.

41. Mr Craig: Will that system be imposed fully in future? I was amazed that neither the relevant Minister nor DFP officials were informed about the costs that were involved in the case study that is described in the report.

42. Mr Thomson: They would have been picked up later. The expenditure in the case study was irregular — expenditure without the formal approvals. Therefore, that would come through later, during the audit process.

43. Mr Dallat: I am listening carefully to hear whether you can justify satisfactorily a £10 million increase in consultancy fees, and, so far, I have had no success. Mr Robinson said that resource accounting was one of the difficulties. If I were Micawber and balancing the books, I would take that as a reading. Resource accounting is designed to improve the bookkeeping of the Department, but you tell us that it is one of the major reasons that you spend more money.

44. Mr B Robinson: The move from cash accounting to resource accounting was a major change in direction for the Government. Resource accounting requires us to prepare a balance sheet, which was something that no Department did before now. Preparing a balance sheet requires a great deal of detail on fixed assets, which the Government did not require previously. They did not previously require details on the development of proper accruals, accounting, creditors and debtors. In some specialised areas, such as offering and paying grants, significant work is involved in working out contingent, future, and long-term liabilities. I understand the reason that Mr Dallat has posed his question, which was reasonable. However, the magnitude of change that was required to move from cash accounting to accruals accounting was considerable, particularly when Parliament, in parallel, asked us to close on our accounts much faster. Therefore, advancing the timetable challenged all of us considerably; for instance, the Audit Office received significant extra resources to help it cope with that process.

45. We were unable to recruit instantly from the marketplace or at the levels that were required across all Departments. That process has taken some time. As I said, at the same time we were seeking to develop whole-of-Government accounting, which has not yet fully worked its way through. Those are very significant challenges.

46. Mr Dallat: Given that Departments have their balance sheets, prepayments, accruals and all the basic, standard requirements that even the smallest sole trader is expected to show on tax returns, are they now finished with the consultants? Is everything done in-house?

47. Mr B Robinson: I would not say that we are entirely finished with consultants, given that the work to close on our accounts faster is still making demands on us. However, the main reason that we are not finished with consultants is that extra work on Account NI is tying up our staff. On 3 December we will introduce the first wave of that work, which means that, for the first time ever, we will have a single chart of accounts and a single source of financial information for all 11 Departments. That will be a significant step forward in dealing with some of the concerns that we all share about the accuracy and fulsomeness of all the analysis on consultancy expenditure.

48. Mr Dallat: Can we be sure that the old trick of using expensive consultants is not a way of increasing manpower while complying with the 3% savings under which all Departments are supposed to operate? Your answer suggests that that will still happen.

49. Mr B Robinson: The use of consultants might have provided some short-term comfort in some areas; I do not know. However, we have been under considerable pressure to reduce costs. We are likely to come under the CSR. Consultancy costs are charged to administration in the same way as associated staff costs. Given that we all acknowledge that consultants are expensive —

50. Mr Dallat: They certainly are.

51. Mr B Robinson: I do not see that there is any real incentive for Departments to increase manpower by using consultants in the medium term. In fact, the incentive would be to do the opposite. In order to meet pressures, such as closing faster on accounts where there is a definite deadline to which we are keen to adhere, I can see some short-term advantage in using consultants in order to ensure that the work is done. However, in the long term, if any Department’s own staff can do the work, it is not in any Department’s interest to use consultants.

52. Mr Dallat: One of the other reasons given for the big bill — I believe that David Sterling mentioned it — was the infrastructure difficulty in the Department for Regional Development. Perhaps that is unfair, and you may have been through it before. However, millions of pounds were spent on consultants for the Bangor to Belfast railway project. Can you give the Committee some examples of where money has been saved?

53. Mr Sterling: Yes. The important point is that we engage management consultants largely because we lack the capacity to provide specialist expertise or advice. I can think offhand of one area in which the engagement of consultants led to reduced expenditure — or to less expenditure than we thought we would need.

54. For example, last summer, we were working with the organisation that was then known as Water Service to agree to develop a capital-works programme for the next seven years. Discussions took place between the Department for Regional Development, DFP and the Department of the Environment in particular, because the drinking water inspector for Northern Ireland and the Environment and Heritage Service had a specific interest in ensuring that investment was tackling non-compliance problems. The difficulty that we faced was that at that stage, the proposed capital investment for the following seven years was estimated to be around £2·1 billion. There were considerable differences of opinion about what actually needed to be done and how we should best go about doing it.

55. To get round that, we agreed that a firm of independent consultant engineers that had expertise in carrying out technical audits on water and sewerage infrastructure should be appointed. That cost in the region of £100,000 to £150,000.

56. That firm identified opportunities to reduce the proposed capital investment from £2·1 billion to £1·4 billion. The significance of that was that the appointment of those consultants meant that the drinking water inspector and the Environment and Heritage Service were satisfied that the final agreed plans would be sufficient to meet their needs. Therefore, that was an example of how the use of consultants can lead to reduced expenditure.

57. Mr Dallat: That is fine. Thank you for that example. Consultants are in the business of making money. Some of them can become powerful. Indeed, I remember one such consultant — I think it was Mr Quinn — who wrote a scurrilous article about the Public Accounts Committee in a professional magazine. At times they are out of control.

58. The Chairperson: That was before our time, John.

59. Mr Dallat: Yes, but you need to benefit from the experience of others.

60. Their hospitality and gifts were not confined to cheap ballpoint pens; at times, they were lavish. What advice has been given to civil servants about not associating with those people in social circles where, for want of a better term, they could easily become more than friendly?

61. Mr B Robinson: The Department of Finance and Personnel issued guidance on hospitality, and that was updated in August 2006. That guidance makes it clear that: in carrying out their duties, members of staff should not do anything that could give the impression that they may be influenced, by a gift or by hospitality, to show bias either for or against any party.

62. Mr Dallat: Surely those kinds of relationships existed before the update was issued. Are you sure that the guidance is now being adhered to? Are you sure that records are now up to date, and that everything is hunky-dory?

63. If I were a farmer, I would describe the consultancy business as the lambing season: some £40 million of public money has been spent, yet we cannot find places in nursing homes for elderly people in Coleraine.

64. Mr B Robinson: It is crucial that issues such as hospitality are controlled and that people do not perceive that anything untoward is going on. It is important to note that the Comptroller and Auditor General’s report makes clear that there is strong rationale for using external consultants in cases where the resources or expertise are not available. The challenge for the Department is to ensure that external consultants are used only when it is absolutely necessary, and that value for money is achieved when they are used.

65. Mr Dallat: That is what we want to hear. The PAC is the buffer zone between the Departments and the public. There was a lot of adverse publicity about hospitality being bestowed on civil servants, which is the reason that I asked the question.

66. I want an assurance that procedures are in place, that records are kept up to date, and that there is no prospect that anybody could be getting a good return on their hospitality. Hospitality is used to generate good will and to strike business deals.

67. Mr B Robinson: From the public-sector point of view, I can assure the Committee that DFP considers carefully the use of hospitality: it is a standing item in our senior management team discussions, and records on the matter kept are up to date. The guidance requires me to review information on hospitality for all the people who report to me on an annual basis, and I do that. My own hospitality is in turn, reviewed by the head of the Northern Ireland Civil Service. Therefore, the new guidance is fully operational.

68. Mr Dallat: Are procedures in place to ensure that consultants never review their own work? They should never be in the position of operating both as consultants and external or internal auditors, reporting on their own achievements or, worse still, their lack of achievements.

69. Mr Thomson: I agree that that should never happen.

70. Mr Dallat: It did happen.

71. Mr Thomson: We issued guidance that clearly stated that external auditors should never operate in consultancy mode. Only a month or two ago, following a recommendation that the Comptroller and Auditor General made in his report this year, I issued definitive guidance to Departments about internal audit and consultancy. It is very important that no such conflicts of interest exist.

72. Mr Dallat: I thank Mr Thomson for that.

73. Mr Hamilton: I am almost tempted to ask Mr Dallat what he meant by the expression “more than friendly”. Fortunately, the answer took the conversation somewhere less exotic than it could have gone. [Laughter.]

74. The Comptroller and Auditor General’s report and the DFP update shows that expenditure on consultants has rapidly increased. Is it not the case that contracts should contain arrangements for the transfer of skills? Does that trend towards increases not suggest that that provision is inadequate and that those skills are not transferred from private-sector consultants to the Civil Service in the way that they should?

75. Mr B Robinson: We are addressing that point through our own business consultancy service. The opportunity for skills transfer exists, and, as you rightly say, that should be happening.

76. As I have said, we have undertaken a review of that work, and I pointed out that we needed to raise the level of it. We are now working successfully with Departments on that higher level. It is important that the Departments, who are the internal customer, are satisfied with that work. It is all very well for the Department of Finance and Personnel to strike out in a new direction, but if the Departments are not confident that a new level has been achieved, the project will not succeed.

77. However, we have reached the new level, and we see the opportunity to create more such work. The business consultancy service, along with CPD, is considering greater integration when contracts are let to ensure that the opportunity to transfer skills is taken. Under the Professional Skills for Government programme, we are also required to increase the skill levels of staff. Therefore, all the incentives exist.

78. However, we have been slow to introduce those mechanisms. The report that we are discussing was published in 2004. We undertook the analysis, and the change of direction in the business consultancy service occurred in the summer of 2006. I acknowledge that we have been slower to pick up on opportunities for skills transfer; however, we have moved some distance along that route.

79. However, that will continue to be a challenge for us. Earlier we discussed the new components in and new demands of the high level of consultancy spend, and we must adapt to meet those. Our financial management has responded to the challenge with more professionalism and by recruiting professionals, but we must continue to be on the front edge of that challenge if we are to succeed in bringing the consultants’ work in-house, which is what we want.

80. Mr Hamilton: Therefore, is it fair to say that you have in place a strategy to move away from — or to try to curtail the dependency on — external consulting and move back to developing better in-house skills? Does that describe your strategy? [Inaudible.]

81. Mr B Robinson: It is not just a strategy: we have had success. In the past year, we have started work on policy appraisal and review, and that amounted to about 25% of the work in the business consultancy service. We were not doing that two years ago. We have seen about 13% of the service’s work in strategic management: that was an area of activity in the framework agreements. We are now doing that work internally, and I am keen that we move more quickly in that area.

82. Mr Hamilton: It would be more cost-effective if more of that work were done in-house. Is there any way that you can identify some of the large-scale consulting work that will need to be done in the medium- or long-term and try to plug the gap? Can you look down the line, identify deficiencies and upskill employees to take account of such work?

83. Mr B Robinson: We have moved into those new areas in three ways: by looking at the framework agreements; by looking at where Departments were buying in the marketplace; and by challenging ourselves to come up with a couple of areas to move into. We have succeeded in those tasks.

84. The reform programme that is under way and the work that is coming out of the review of public administration points to our developing a better understanding of what change management is about. Some elements of change management are in strategic management, which I touched on earlier, and some are in policy appraisal and review. However, we are considering a couple of areas in the work that CPD has been doing in tandem with the business consultancy service.

85. Mr Orr: We are working along with the business consultancy service to help Departments to properly scope their consultancy requirements at the time of tender.

86. We and the business consultancy service are based in the same office, and we are now providing that scoping service to Departments to help them, for example, to estimate correctly the costs of their consultancies, to ensure those costs are properly scoped, and to make sure that they need consultants in the first place.

87. Mr Hilditch: Paragraph 2.17 of the Comptroller and Auditor General’s report and the responses to question 3 of DFP’s update of that report indicate both the unacceptable extent to which tenders are awarded without competition and the failure to use procurement expertise. Bearing in mind the obvious pitfalls of non-competitive tendering, can you give me an example from your own Department of a major contract that was laid using a single-point tender? How were you able to justify letting a contract without competition?

88. Mr B Robinson: If I may update you, that situation has improved since the report was published. I can think of two examples of where single-tender action has been justified. The Department of Finance and Personnel retained Sir George Bain to undertake the review of the Northern Ireland Legal Services Commission. We were quite clear that Sir George had the necessary skills and was the one person in Northern Ireland who could do that job. The project required Sir George’s skills in dealing with the sensitive work that had to be done both with various elements of the legal profession and the bringing together of other pieces of work. Therefore, it was important to use him.

89. Another recent example of the use of single-tender action is when the Assembly Commission sanctioned the use of that mechanism to retain my predecessor, who was appointed in August to lead the review of the Assembly secretariat. In that case, the Commission itself and everyone who was involved in the project believed that he had a particular set of skills that were useful for the capability review. No one else in Northern Ireland could bring those skills to the work.

90. Those are the two examples in which we saw single-tender action as justified.

91. Mr Hilditch: Paragraph 2.21 of the Comptroller and Auditor General’s report recommends that the Department should set targets to reduce non-competitive tendering. In your opinion, were challenging targets set and have they been met?

92. Mr B Robinson: That is a really difficult point, to be honest. If someone says that something is unusual by nature, I am not sure that they can set a target for it. They would be saying that, by definition, they would use it as an exception. I am not sure that anyone who is going into any process wants to signal that they believe that they are bound to come up with several exceptions.

93. I found that part of the report and the recommendation to set targets difficult. Perhaps saying that we did not expect the figure to exceed a certain amount might be a more appropriate yardstick.

94. As we said, according to the figures for 2006-07, single-tender action is running at about 10%. That seems to be a little high. However, all the pressure is about ensuring that competitive tendering occurs. I have already said that DFP acknowledges that it needs to do significantly more work, both on obtaining information on competitive tendering and on test drilling beneath it. I suppose that I would like to see the Department doing those things for a year before coming to a definitive view on what constitutes the right level at which the maximum for non-competitive tenders should be set.

95. Mr Hilditch: Thank you.

96. Mr Sterling, question 3 of the Department’s update to the Comptroller and Auditor General shows a continuing tendency for your Department to award contracts by single-point tender. How can you demonstrate that you obtained best value for money for the 10% of contracts that were let without competition in 2006-07?

97. Mr Sterling: That is an area of concern, and the Department wants to minimise the extent to which it uses single-tender action. Arrangements are in place whereby single-tender action can be used only with the approval of the chief executive of an agency or a deputy secretary. In a sense, the aim of that is to ensure that such decisions are taken at a very high level. You are correct to say that around 9% of the contracts in 2006-07 were let through single-tender action.

98. As for best value, single-tender action will be adopted only where there are overwhelming reasons for doing so. That could be either because there is a need to move quickly or an expert in a particular field needs to be engaged. I gave an example to Mr Dallat about consulting engineers who were brought in at short notice. Those consultants were engaged, under single-tender action, on the basis that they already had an arrangement with Northern Ireland Water, they were acknowledged experts in the field, they had worked with OFWAT, and they had a clear track record. I have already described the benefits that they provided.

99. I can refer to some of the other single-tender actions that occurred during the year. For example, our information systems unit — which is quite technical, and I am not sure that I fully understand it — needed work done to improve its ability to develop websites, etc. It ended up that there was no choice but to award a single-tender action contract to Microsoft, given the extent to which Microsoft software is used in our operating systems.

100. Another example where we used single-tender action concerned airports and public transport. We wanted to review the arrangements for monitoring noise at George Best Belfast City Airport. We took advice about the matter from the Department for Transport in London, and we were told that a limited number of people had the relevant expertise. It turned out that an academic, who was attached to Manchester Airport, had particular skills in monitoring noise and the impact that it has on local communities. He was an acknowledged expert in that field, and we therefore decided to appoint him by single-tender action. His work proved to be very helpful.

101. Another recent example of single-tender action was when our regional planning section was preparing some work in association with one of our planning policy statements and we needed to update some information about retail planning. It made sense to re-engage consultants who had been used four or five years ago. Those are four examples of unique circumstances that provided justification for using single-tender action.

102. However, I want to emphasise that our predisposition is very much against single-tender action; we prefer to use competitive procurement. The main control that we have in place on that is that single-tender action must be approved at chief executive or deputy secretary level.

103. Mr Hilditch: While there may have been “justification”, as you say, was it best value for money?

104. Mr Sterling: Yes. Post-project evaluations must be conducted in order to comply with DFP’s guidance. We have put a lot of effort into that. Post-project evaluations are designed to ensure that the outcomes that we were seeking from the assignment have been delivered. In each of those cases, they were.

105. Mr Lunn: Mr Sterling has mentioned post-project evaluations. Paragraph 2.29 of the Audit Office report states that 93% of contracts were not subject to post-project evaluations. That makes it impossible to gauge the performance of the consultants and providers at that time. Has any consultant ever been fired for failure to perform satisfactorily?

106. Mr B Robinson: I cannot give any example of that having happened. I agree that the level of evaluations being undertaken was unacceptable. The updated information that we provided in response to the Audit Office questionnaire shows that post-project evaluations are up to 32%; therefore, there has been some improvement on that issue. DFP needs to have more information; and we will get that. Of the 562 projects that were undertaken in the two years in question, it is unclear to us how many of those were still actively proceeding and, therefore, not yet ready for a post-project evaluation.

107. Even with the update, it is difficult for us to gauge how good that performance is. I accept that that is not good enough. We need to be able to do that in order to satisfy ourselves that the work is being undertaken properly and that value for money is being achieved. That means that we need to get more detailed returns from the Departments in order to be able to follow up that point, and to reassure ourselves and the Committee that value for money is being delivered by the consultants.

108. If we find that value for money is not being delivered, we will make sure that our main database — and through that, our frameworks — will be updated regarding those concerns. Therefore, we will be in a much better position to ensure that even if we have made a mistake once, we are much less likely to repeat it a second time.

109. Mr Lunn: You have almost anticipated my next point. Do you keep a register of consultants who do not deliver? Is there a blacklist? Do you have information on which consultants are good at what?

110. Mr B Robinson: We have some information on that in CPD.

111. Mr Orr: We do not have a blacklist.

112. Mr Lunn: Perhaps that is the wrong terminology.

113. Mr Orr: However, as part of the framework process, we assess consultants on the basis of quality, price, and their ability to do the work. That is part of the framework process.

114. Mr Lunn: How do you share experience across the public sector?

115. Mr Orr: During the previous period of devolution, a major review of procurement was carried out — endorsed by the Executive and the Assembly — which set up new procurement structures in Northern Ireland. It set up the procurement board, which is chaired by the Minister of Finance and Personnel and is attended by all of the permanent secretaries.

116. Below that level, there are regular meetings of the heads of the various centres of procurement expertise. The next level down is the procurement practitioners’ groups, which meet once a quarter to discuss various issues that arise across the Civil Service. External consultancy is one of the issues.

117. Mr Lunn: There have been instances when Departments have followed the advice of consultants and, as a result, public funds have been lost. In some cases, the public purse has lost quite a few million pounds. You must be aware of other cases in which consultants’ advice has not been very sound. I can think of a couple of cases that the Committee has already examined, one being the Belfast to Bangor railway line, which was mentioned earlier, and the other involving the surplus lands at Wellington College and Balmoral High School. Clearly, in those two cases, consultants’ advice cost us money. Has any action been taken to recover fees paid and losses incurred as a result of following the advice of consultants in such cases?

118. Mr B Robinson: That is primarily a matter for Departments to follow up on. I cannot give any specific examples here and now. It is for the Departments to consider, within the contractual arrangements that they have in place with the consultants for individual projects, what action they should take — or whether it is, in fact, open to them to take action.

119. Mr Lunn: What is the point of post-project evaluation if it does not offer at least the potential to recover fees from a consultant who has not performed?

120. Mr B Robinson: I acknowledge that we need to do more to address that matter. We need to be the custodians of more information on the performance of consultants. The evaluations that David Orr mentioned are carried out when the frameworks are being set up and when decisions are being taken about whether to admit consultants onto the frameworks. However, you are quite right that the evaluations should continue to be part and parcel of the process and inform any decisions as to whether consultants should remain on the frameworks.

121. Mr Sterling: I would like to pick up on the point about the Belfast to Bangor railway line. In that case, the Committee clearly recommended that if a Department — or any of its agencies — terminates a contract with consultants or others, it should ensure that it does not waive any rights that it might have to recover any damages or losses. We are all now signed up to, and operate in accordance with, that recommendation.

122. Mr Lunn: If I remember rightly, that particular lesson cost about £13 million. The lesson was learned; fair enough.

123. Case study H at appendix 3 refers to the Belfast port, which relates to your Department, Mr Sterling. The costs in that case spiralled from about £140,000 to over £300,000. From the update that you have provided to the Audit Office, it appears that a post-project evaluation has now been completed. What were your conclusions on the management of the contract and on whether you received value for money?

124. Mr Sterling: I must first say that it is unacceptable that the post-project evaluation was not completed on time. We now have arrangements and controls in place to ensure that those evaluations are done quickly and are monitored. The governance of consultants within the Department is now monitored at board level, so that added control has been put in place.

125. In this specific example, we concluded that value for money was achieved. The main reason for the extension in that case was that the consultants were initially engaged some time around 1998, during a period of direct rule. They were engaged on the basis that they would help to provide advice on the possible flotation of Belfast Harbour. In 2000, after devolution, there was a change of policy, and the Department decided to retain the same consultants to provide advice on the different policy agenda that Ministers had at that time. That was the main reason for the extension in the costs of that particular contract.

126. Mr Lunn: I was not really querying the fact that the contract was extended a few times. We can see the chain of events that led to that extension; that was OK. I want to know whether, at the end of the day, you are satisfied that value for money was achieved.

127. Mr Sterling: The consultants were commissioned to carry out a considerable amount of additional work above and beyond that which they were originally required to do, and the Department was satisfied that it received value for money for that additional work.

128. Mr Lunn: Having read the report, I am now fascinated to find out who evaluates consultants, given that they are supposed to be the experts. Who carried out the post-completion evaluation in that case? Are you satisfied that they had sufficient expertise to carry out a rigorous assessment of the advice that the consultants gave?

129. Mr Sterling: A post-project evaluation is initially carried out by the division that commissions the work. Its assessment will be based on whether the assignment delivered against its objectives — in other words, whether we got what we paid for. If the assignment cost more than £75,000 and required ministerial and DFP approval, the evaluation must then go to DFP before it can be signed off. However, we would also ensure that a post-project evaluation like that would be seen by our economists, who have specialist expertise and who would provide technical advice and support to the business areas.

130. Mr Orr: We have also introduced the gateway review process, which is a system whereby independent people come in —

131. Mr McLaughlin: Consultants?

132. Mr Orr: Sometimes they are consultants, but more often they are other civil servants who have been trained in the gateway review process. At various points during these big programmes, they give an independent view to the senior responsible owner. One checkpoint is when the project is ready to go into service; another is when the project has been completed, to find out what lessons have been learnt. In the past few years, over 100 projects and programmes in Northern Ireland have gone through that process.

133. Mr Lunn: Mitchel’s point was well made. We do not have a situation whereby consultants report on consultants, do we?

134. Mr Orr: No.

135. Mr McGlone: Paragraph 2.36 of the Audit Office report refers to the opportunities for Departments to collaborate and harness collective buying power. Can you provide recent examples wherein Departments have identified opportunities to work together and used their collective purchasing power to get a better deal? More importantly, most people would ask why it is not standard practice to do that. Perhaps you could elaborate on that for us.

136. Mr B Robinson: The purpose of the framework agreements is to achieve that collective approach. Those agreements are essentially about letting the marketplace know that Departments are likely to make substantial blocks of work available in the future; finding out whether the marketplace has the necessary professionalism and capability to carry out that work; and asking for a price for those services. That is one way of bundling together some of that work.

137. Another way in which we have been bringing work together to get the best value is through the shared service projects, which are part of the major reform agenda. In effect, we are buying one single processing system for accounting transactions for all 11 Departments. That, and other similar projects, represents a significant step forward in aggregating and bringing together such work.

138. Those are the two main ways in which we are dealing with that issue. We are also looking for an opportunity to development closer involvement of our own business consultancy service in the framework agreements at the next stage.

139. Mr Orr: Would you like me to expand on the framework?

140. Mr McGlone: Yes, particularly in reference to case study G at paragraph 2.38, which is a classic case of things having gone wrong. An IT consultant was employed to produce an e-business strategy for a single Department. All Departments were required to produce those strategies, and that begs the question of why was there not joint commissioning to make the best use of that in the Civil Service context and the collective purchasing power. There were very substantial overspends in that case — from £30,000 to £183,000. Why can it not be done that bit better, using collective buying power and bargaining power?

141. Mr Orr: That falls into the category of the shared services centre example that Mr Robinson has just given. One of the shared centres is IT Assist, which goes across all Departments to help them to have a coherent approach to IT expenditure. However, within the frameworks there is a special IT and e-business category, so we are getting the buying and bargaining power at the outset by telling consultants that we will be awarding individual commissions from the larger framework. That promotes competition at the very start.

142. Mr McGlone: Can you assure the Committee that those situations will not arise in the future, and that we will not have one Department doing one thing — going out to tender and getting into substantial overspend — and, a month or so later, other Departments doing exactly the same thing? There would be independent fiefdoms, all operating at substantial cost to the public purse.

143. Mr Orr: I assure Mr McGlone that I am trying to make it as attractive to Departments as possible to use the frameworks that we have put in place.

144. Mr McGlone: That does not necessarily answer my question. Making it attractive and making it compulsory are two different things.

145. Mr Thomson: Another point on this, which has not been mentioned, is that, following the 2004 report, DFP issued new guidance in 2005 on how Departments should deal with consultants. We issued a Dear Accounting Officer letter, and quite a number of new practices were introduced as a result of that. One was that Departments should produce an annual external consultancy plan, and that guidance refers specifically to your point:

“Finance Directors should take appropriate steps to ensure that their department avoids … possible duplication of work both within their own department and between it and other departments, and identifies opportunities for collaborative purchasing power with other departments.”

146. So that was recognised as an issue. However, I must be honest: Departments are still at an early stage on that. We have not seen a huge amount of evidence that those plans are still coming through. However, that requirement was placed on Departments in 2005.

147. Mr McGlone: That covers that. The second element is the bargaining power. I see from your response to the Audit Office questionnaire that two firms in particular have received at least £27 million between them over the past three years. This is where the bargaining element comes in: are you happy that you have become so dependent and so reliant on two firms? How can you assure the Committee that, on public expenditure and how that is best safeguarded, you are getting the best possible deal for the public purse?

148. Mr Orr: The frameworks that I have spoken of have a wide range of consultants on them, numbering in the tens. There are 37 on the financial services framework, 67 on the information systems and e-business framework, and 82 on the management consultancy framework.

149. The other method of ensuring and promoting competition is to individually tender projects when there is a large requirement for consultancy services. The two firms that have been mentioned are at the top because of their involvement with some of the large reform project consultancies that we have mentioned.

150. Mr B Robinson: PricewaterhouseCoopers is particularly involved with the Account NI project, and Deloitte and Touche is heavily involved with the Workplace 2010 project. Both of those contracts were advertised right across these islands. The competition for those projects was strong and there was a lot of interest.

151. Those are the firms that can best meet the requirements of those projects. As Mr Orr said, that is the reason why they are at the top of the list. They are both large, multidisciplinary consultancy practices that draw on areas of expertise — not just financial expertise, but other aspects as well. Therefore, we are confident that there was a lot of interest in those projects, and that the bids were competitive.

152. Mr McLaughlin: Workplace 2010 is a huge contract — I think that it is the largest contract of its kind that has been let in this regional economy. Mr Sterling, in the update that DRD has provided to the Audit Office, the five largest consultancy projects between 2004-05 and 2006-07 are listed. All of those contracts are ongoing. The checklist for those contracts seems to be a classic and fulsome adherence to existing guidelines: business cases were prepared for each of the projects; the contracts were competitively tendered; the Central Procurement Directorate or a centre of procurement excellence was used in the preparation of each project.

153. We then find that four out of the five projects have significantly overrun the negotiated tender price. Those projects are ongoing, so the problem could be getting worse as we speak. In fact, an overall budget, according to my rudimentary calculations, of circa £13 million has actually increased to £18·5 million. Bearing in mind those outcomes, how effective are the procedures? Workplace 2010 is a huge project. How do we protect the public interest and the public purse?

154. On the face of it, the procedures that are in place seem to be rigorous and reassuring, and it appears that they should sustain control over the project. It should be borne in mind that some of the consultants responsible for those overruns will be advising us on PFI and PPP contracts, yet they cannot manage their own projected costs for the projects that they have signed up for.

155. John Dallat referred earlier to the lambing season; “lambs to the slaughter” is the phrase that occurs to me. How do we explain that performance?

156. Mr B Robinson: Are you talking about DRD in particular?

157. Mr McLaughlin: I addressed the question to Mr Sterling; it is about his report. I made that clear.

158. Mr Sterling: Yes, it looks bad; I will not argue with that. There are significant overruns in the five major consultancies. It is bad. In each case, there are reasons why the out-turn costs to date have been higher than the original tender price. In most cases, that has happened because issues have arisen over the last few years that have made the tasks more complicated.

159. First, there were the Water Service’s Alpha and Omega PPPs. Negotiating and completing those contracts turned out to be more complex than had been envisaged. Nonetheless, the final business cases for both those projects show that they will still deliver value for money. They have been signed off as such by DFP.

160. On water reform, the legal advisers were appointed at the beginning of 2004. I must confess that, at the time, we did not have a clear understanding of the complexity and difficulty of the challenge that we faced. We were under pressure from Ministers at the time to move quickly. However, scoping work was done very early in 2004, and within four or five months of that contract’s being awarded it was revised and capped at around £3·75 million. It was revised again last year. Again, it has been a very complex process, not just in terms of setting up a new company, but also in setting up new environmental regulatory arrangements.

161. Mr McLaughlin: That project is not yet complete, and it has already overrun by 320%.

162. Mr Sterling: I can advise the Committee that that assignment is now complete. There was an issue with the provision of financial and regulatory advice to the new company. Setting up the new company proved that there were many complex issues, which took longer to resolve than had been planned. There were similar problems with the establishment of the customer contact and billing functions.

163. It is bad that the out-turns are worse than had been planned, but, in each case, as far as the senior responsible owner of each project is concerned, there is justification for that. I am still confident that, in each of those areas, value for money will have been delivered and that the post-project evaluations will show that.

164. Mr McLaughlin: Will the gateway process supplant or replace the post-contract evaluation process? In any event, is there a guarantee that those five contracts will definitely be subjected to post-contract evaluation?

165. Mr Sterling: They definitely will be evaluated. Some are in the process of being evaluated. The water reform process was subject to gateway evaluation.

166. Mr McLaughlin: Mr Thomson answered this question earlier; I am addressing it this time to Mr Robinson. We talked about the threshold of £10,000 for the business case and the limit that would require ministerial approval under the guidance issued by the Department. How does that protect us in circumstances, such as those demonstrated by the Comptroller and Auditor General’s report, where, in 45% of the sample of contracts that he examined, the final payment exceeded the limits? In other words, the figures were wrong from the start, and post-project evaluation might have demonstrated that the business case was not soundly based. How can we protect ourselves and ensure that those circumstances do not arise in future? If someone presents a proposition that falls below either of those thresholds, but the actual cost subsequently exceeds them, what do we do? Will the problem be repeated continuously?

167. Mr B Robinson: I will deal with that question. You mentioned shortcomings and inadequacies in how business cases have been dealt with up to now. I am in total agreement with you on that point. The Department of Finance and Personnel needs to have available more detailed information from Departments. The Department of Finance and Personnel should then monitor that information in order that it can do much more with it than it has been doing up to now. That fits with the point that David Thomson made about signalling whether expenditure was used properly. The key to that will be the provision of more information to the Department of Finance and Personnel and how it acts on that.

168. Mr McLaughlin: I would like to explore briefly a couple of the downstream effects of what I see as gaps in our accountability mechanisms. I appreciate that those measures are continually reviewed, and I strongly support taking the approach of having a centre of procurement excellence (COPE). You may need to come back to me on this, Mr Robinson, but I have heard that the Planning Service loses a significant number of its trained personnel to private consultancies. Could you provide us with some figures on how many such staff have gone to private consultancies over the past five years?

169. Mr B Robinson: I will come back the Committee on that; I do not have those figures to hand.

170. Mr McLaughlin: I have related questions to ask, which are the bases of my unease. What safeguards exist in our accountability mechanisms to ensure that staff do not work for the private sector on the same projects that they worked on when they were in the Planning Service? Do our management and accountability mechanisms demonstrate that that has occurred over the past five years?

171. Mr B Robinson: I can answer part of that. The rules that exist for people who are moving to the private sector provide for waiting periods and the application of certain conditions where there is cause for suspicion of impropriety. Mechanisms are in place to do that, and they should be sufficient to safeguard both the public service and the individuals concerned, who should be able to deal with their move in a way that does not attract unwarranted criticism. All civil servants owe a duty of confidentiality to their employer — in this case, the NICS — and that continues even after they have left the Civil Service. Those are the general circumstances under which employees leave the Civil Service for the private sector.

172. As to your anxiety about specific cases, I will cover that in my response to the Committee.

173. Mr McLaughlin: I have a further related question. I have been a public representative for over 20 years, at both council and Assembly level. Although I cannot speak for the other elected representatives who are present, suggestions have been made to me that some Planning Service staff work as private consultants in their own time, sometimes on the same projects on which they work as Planning Service employees. If that were true, would you agree that that is absolutely inappropriate? Will you tell the Committee whether there have been any actual or suspected cases of that nature in the past five years and whether the Department’s accountability mechanisms look for or recognise the potential for such circumstances?

174. Mr B Robinson: I will come back to the Committee on that point.

175. Mr Beggs: My question is for Mr Robinson. Paragraph 3.23 of the 2004 report indicates that there have been discrepancies in the reporting of many costs. You have just given the Committee an update on that point. Are you absolutely sure that no other significant contracts have been omitted from that update and that the information that are we getting today is accurate? Have all payments to consultants been included? How confident are you about the figures that are in your update report?

176. Mr B Robinson: We have undertaken all reasonable steps to ensure that the information in that update is accurate. However, as I made clear in the covering letter to the Comptroller and Auditor General, given that responses from Departments came back slowly to us, we were not able to adhere to the timetables that he asked us to. The Committee will note — and I acknowledge — that there were changes in the responses from five Departments. Those changes were made in the time that elapsed between the figures for the first table in that update were produced and responses were given in answer to either parliamentary or Assembly questions.

177. Although I assure the Committee that we have taken all reasonable steps to ensure the accuracy of the information, to be candid, the experience that we have had means that I cannot give any cast-iron guarantees on it.

178. Mr Beggs: Returning to paragraph 3.23 in the 2004 Northern Ireland Audit Office, what was the reason that those were not picked up through the Department’s own auditing and monitoring procedures?

179. Mr B Robinson: Expenditure is recorded in departmental or agency accounts. The way in which that expenditure is classified is the reason that we received different responses. There are other, similar categories of expenditure, and it appears that that classification has been the problem, because in circumstances where we have had audit reports, we have received a clean bill of health. It is important to say that the Department of Finance and Personnel is clear about needing to get on top of this more than it has been doing to date; it is not satisfactory for me to give a response such as this to the Committee.

180. Mr Beggs: I welcome your earlier acknowledgement that there could have been errors in parliamentary or Assembly questions, and I have actually experienced that myself through your update. I am referring to annex 2 of your update report and, in particular, to your first answer to a question on DRD and Roads Service expenditure. The update indicates that the Roads Service external consultancy expenditure for 2005-06 was £1·69 million. However, in a question for written answer, I recently asked the Minister for Regional Development about expenditure on consultants, and the answer that I received from him was that £7 million was spent on consultants in 2005-06.

181. Similarly, your update to the Committee for 2006-07 states that the expenditure on external consultancy for Roads Service was £0·86 million, but the Minister for Regional Development answered my question for written answer by saying that that expenditure amounted to £8·4 million.

182. We are talking about millions of pounds in sizeable consultancy projects. What is the reason that you do not know how you are spending that money? How can one answer be given to the Public Accounts Committee and another to an individual MLA when they ask a question? What is going on?

183. Mr Sterling: I am probably best placed to answer that.

184. I saw your recent question, and I anticipated that that would be a difficulty. Roads Service’s answer to you identified what had been spent on design consultancy, as opposed to external management consultancy. The information that was contained in the DRD answer and included in the composite return referred to external management consultancy, which is largely the subject of the Northern Ireland Audit Office report. That is what the letter to the accounting officer —DAO (DFP) 3/05 — refers to.

185. To explain the difference between the two figures, Roads Service does not have the capacity to carry out a lot of route-corridor studies and preliminary design work. That design work would usually be part of an overall project, and part of the costs that are appraised when a project is being specified at the beginning.

186. Members will have heard the announcement yesterday about the route-corridor studies that are about to commence on the A5 and A8. The appointed consultants will probably need to deploy between 150 and 160 people to carry out route-corridor study work and preliminary assessments on the A5. Roads Service does not have the capacity to deploy that number of people. We would not classify that as external management consultancy. When the preliminary work has been done on larger work projects, which is anything that costs over £1 million, Roads Service would provide a design-and-build contract to contractors. Design consultants will be involved in the design of those major schemes.

187. I understand and sympathise with the presentational confusion about the issue. However, the response that we provided to your question for written answer does not refer to external management consultancy.

188. Mr Beggs: The Committee simply wanted updated details of consultancy expenditure incurred by your Department. The question did not mention “management” or “technical” — it simply asked about external consultancy. That is what we wanted. I would have understood if you had broken the answer into two components, but a sizeable amount of consultancy expenditure has been excluded. However, in other areas, such as the Water Service, expendi

Session 2007/2008

Sixth Report

PUBLIC ACCOUNTS COMMITTEE

Report on Use of Consultants

Together with the Minutes of Proceedings of the Committee relating to the Report and the Minutes of Evidence

Public Accounts Committee Membership and Powers

Table of Contents

Report

Appendix 1:

Appendix 2:

Appendix 3:

List of Abbreviations used in the Report

Executive Summary

Introduction

Central Oversight of Consultancy

Ensuring Value for Money

Summary of Recommendations

Central Oversight of Consultancy

Ensuring Value for Money

Introduction

Central Oversight of Consultancy

Controlling Overall Consultancy Expenditure

Developing NICS Skills

Improving Data Systems and Quality

Recommendation 3 16. The Committee expects DFP, through Account NI, to reintroduce a central database, with appropriate quality control arrangements. This should produce comprehensive and accurate data on all consultancy expenditure at the touch of a button.

Ensuring Compliance with DFP Guidance

Managing Conflicts of Interest

Ensuring Value for Money

Justifying the Use of Consultants

Awarding Contracts Competitively

Recommendation 12 43. The Committee strongly advocates the use of Centres of Procurement Expertise and recommends that all contracts are negotiated through them by procurement experts.

Managing Contracts and Controlling Costs

Learning and Disseminating Lessons

Recommendation 16 53. Post-project evaluations should offer the potential to recover fees from a consultant who has not performed. They must assess the quality of advice obtained and, where it is flawed, action should be taken to seek compensation from consultants.

Using Collaborative Purchasing Power

Appendix 1

Minutes of Proceedings of the Committee Relating to the Report

Thursday, 15 November 2007 Confex 2 & 3, Stormont Hotel, Belfast

3. Evidence on the NIAO Report ‘Use of Consultants’

Thursday, 10 January 2008 Room 144, Parliament Buildings

8. Consideration of Draft Committee Report on Use of Consultants.

Appendix 2

Minutes of Evidence

15 November 2007

Together with the Minutes of Proceedings of the Committee relating
to the Report and the Minutes of Evidence

Public Accounts Committee
Membership and Powers

Recommendation 3
16. The Committee expects DFP, through Account NI, to reintroduce a central database, with appropriate quality control arrangements. This should produce comprehensive and accurate data on all consultancy expenditure at the touch of a button.

Recommendation 12
43. The Committee strongly advocates the use of Centres of Procurement Expertise and recommends that all contracts are negotiated through them by procurement experts.

Recommendation 16
53. Post-project evaluations should offer the potential to recover fees from a consultant who has not performed. They must assess the quality of advice obtained and, where it is flawed, action should be taken to seek compensation from consultants.

Thursday, 15 November 2007
Confex 2 & 3, Stormont Hotel, Belfast

Thursday, 10 January 2008
Room 144, Parliament Buildings