Oral evidence: Modernising the Disclosure and Barring Service, HC 695
Oral evidence, 19 March 2018.
Witnesses
Shankar Narayanan, Sir Philip Rutnam, Scott McPherson and Adele Downey
Chair
Welcome to the Public Accounts Committee on Monday 19 March 2018. We are here today to look at the NAO’s investigation into the Disclosure and Barring Service, which was created out of the Criminal Records Bureau and the vetting and barring scheme. It started around 2008-09 with an attempt to modernise the system to ensure that people’s checks for working with vulnerable people—children and vulnerable adults—were in place in good time. Today we are looking at the modernisation of this and the contract let to Tata Consultancy Services to design, build and run a new IT system, to modernise the system so that it was not just paper checks but available as an online update. The DBS has already paid £8.3 million to Tata for 24 of a 46-month delay in the contract—one of the longest delays we have seen in contracts. We know that negotiations are still underway to settle on the remaining delay. We understand that that might hamper some of your answers, but we want honest answers today, please, on what has gone wrong and why this has this failed so badly and been so delayed. I want to introduce our witnesses and then I have some questions for Sir Philip Rutnam on other issues—I am sure you understand that, given what has been happening in the last week—before we get into the main session. Our witnesses, from my left to right, are: Adele Downey, the chief executive officer of the Disclosure and Barring Service—welcome to you; Scott McPherson, the director general for crime, police and fire group at the Home Office; Sir Philip Rutnam, the permanent secretary at the Home Office since about a year ago; and Shankar Narayanan—have I pronounced it right?
Shankar Narayanan
Yes, that’s fine.
Chair
You are the head of UK and Ireland for Tata Consultancy Services. Just to be clear, this is the same Tata that runs the steel business—are you part of the same group?
Shankar Narayanan
It is part of the same group, but TCS is an independent operating company within the Tata Group. For the purposes of this session, we would appreciate it if you would refer to us as TCS.
Chair
TCS—that is what you are known as. Fine. First of all, Permanent Secretary, we kick off with the very unfortunate incidents in Salisbury. Could you update us, if you know, on how Detective Sergeant Nick Bailey is doing? Is he still in hospital?
Sir Philip Rutnam
I do not have any further update to give you beyond that which has been shared most recently by the police or by Ministers.
Chair
As far as I understand it—as we understand from press reports—38 people were treated for some degree of exposure in Salisbury.
Sir Philip Rutnam
Again, I am afraid I did not know this was going to be a topic of discussion at the start of the hearing, so I do not have up-to-date information on the number of people treated in hospital.
Chair
Perhaps you can tell us about what involvement you had in decisions made about telling the public who were in the vicinity at the time of the nerve attack. It took about a week for them to get advice about what to do. Were you involved in those decisions and discussions?
Sir Philip Rutnam
Are you asking whether I was personally involved in those discussions?
Chair
Yes, personally involved.
Sir Philip Rutnam
Not closely involved personally; those were matters that, so far as I am aware, were dealt with by the relevant ministerial committees, whether it was Cobra or the National Security Council, and by the relevant professional bodies, including Public Health England and the Department of Health—
Chair
Were you involved in those Cobra meetings in any way?
Sir Philip Rutnam
Personally I did not attend them, but other senior officials from the Department did. If it would be helpful, now that I am aware that this is a subject of interest, I could write to you—
Chair
I have to say, Permanent Secretary, I do find it a bit odd. Normally I would give notice, but for something this current and this important, I would have thought you might have been aware that we might have wanted to ask some questions about an attack by the Russians on British soil and your involvement as permanent secretary at the Home Office.
Sir Philip Rutnam
I have to say that I do not have in my head specifics such as how many people have been treated in hospital. I do not want to give you an answer that is anything other than authoritative. So without being made aware of this beforehand, I do not want to give you an answer that might be incorrect.
Chair
Okay. One of the things that has struck a number of people is that there was a long time between the incident happening and general advice being given to members of the public. Is there any light you can shed on what decision-making process took so long in government before members of the public were advised, for example, to wipe down their mobile phones with baby wipes and wash their clothes?
Sir Philip Rutnam
Rather than giving you an answer that may not be authoritative, I can undertake to write to you on this matter.
Chair
What was your involvement in this, as permanent secretary at the Home Office?
Sir Philip Rutnam
I have been deeply involved in a number of respects, but I did not attend those particular meetings.
Chair
In terms of your contact with Wiltshire Police, is the Home Office providing any additional support? Obviously counter-terrorism police are involved from the Met, but is the Home Office providing any additional funding or support to Wiltshire Police to deal with this incident?
Sir Philip Rutnam
We have been closely involved, as you would expect, in a whole range of aspects of this incident, including discussions with Wiltshire Police and with the national counter-terrorism police. We are aware of the mutual assistance that is being provided to Wiltshire Police by a number of other forces. If there are questions of funding, I am sure that those will be addressed in the normal way. You may be familiar with the fact that it is open to individual police forces to apply for special grant if they think that the criteria for special grant are met. I am not aware that that is an issue that has been raised yet. It is possible that it has been, but I am afraid, again, that I cannot tell you.
Chair
Is there anything you would like to do now to reassure the public in Salisbury? We hear that Salisbury is a bit of a ghost town at the moment, because of all the publicity and concern around this. Have you got any message for the public to reassure them?
Sir Philip Rutnam
You will be aware that the Prime Minister as well as a number of other Ministers have visited Salisbury, and I think that quite extensive advice has been given to the local people of Salisbury about the safety of moving around, and significant reassurance has been provided. Without having the authoritative position in front of me now, I do not really want to add to what has already been said on a number of occasions by members of the Government, who are far more senior than me.
Chair
One of the areas that is very much in your purview as permanent secretary at the Home Office is the issue around wealth confiscation orders, and we have looked at this as a Committee before. Are you now taking steps to step up the use of those confiscation orders for some of the so-called Russian oligarchs who are living and working sometimes in this country?
Sir Philip Rutnam
You will be aware that the Government have taken a number of measures to enhance the legal framework in this area, and indeed recently the first two unexplained wealth orders were obtained by the National Crime Agency in court. This is an area in which practical progress is already being made, through the law enforcement system. I don’t want to say anything specific about any link to Russia or any other country. Of course, there is a great deal of speculation in the press.
Chair
So you’ve got nothing to add to that speculation in the press. Anything you want to quell, in terms of speculation?
Sir Philip Rutnam
I don’t want to appear unbriefed in front of the Committee on matters as important as these. If I had been given more notice of particular questions that the Committee might have wanted to raise, I would have been—
Chair
I asked you a general question about what you’re doing on confiscation orders, and surely that’s right bang in your—
Sir Philip Rutnam
And, Chair, you also made a link to the situation in relation to Russia. I have offered the comment that the Government have done a great deal through additional legislation in this area and recently the first two unexplained wealth orders have been obtained in court. This is an area of significant progress, and I am sure it will be the area of further developments yet.
Chair
Okay. I will bring in Anne Marie Morris.
Anne Marie Morris
Sir Philip, I appreciate that there may be a few challenges in talking about current affairs, but what leaves me concerned is that, because of the length of time it’s taken to deal with this, you didn’t have in place a plan for this sort of event, because it’s not the first time we’ve had this happen on UK ground. Do you have in place a robust plan, so that when this sort of thing happens, like this poisoning in Salisbury, you can kick it into effect and work together, alongside health, the police and the Foreign Office, to make sure you deal with the problem promptly?
Sir Philip Rutnam
To be clear, I think this is the first time that a military-grade chemical weapon has been used in Europe, as I understand it, since the second world war, so this is an unprecedented event. But of course, we do have plans for dealing with all sorts of different threats, including chemical threats, and other types of threat as well. I am sure that when the time comes, as always in relation to any incident, there will be an opportunity to reflect on what has worked and what has not worked so well in relation to this incident and an opportunity to make our response better. I do wish to comment on the absolutely fantastic response of the emergency services and the military in providing support to the civil powers in dealing with this incident. It is unprecedented. There will no doubt be things that we can do better in future, but it has been a fantastic response by emergency services and specialists from right across government and the military.
Anne Marie Morris
Sir Philip, I would not in any way want to criticise our emergency services. They are wonderful and do a fine job, but they can only work effectively if they know what they are doing and there is a plan ahead. Help me, because I am no expert in these sorts of incidents, but I did think we had had a previous incident in which a Russian spy had been attacked and died. Am I not right? What is the difference between—
Sir Philip Rutnam
That would be classified as a radiological rather than a chemical weapon incident. I am not a scientist, but from memory, the relevant instrument used then was polonium, which is a radioactive isotope.
Anne Marie Morris
Sir Philip, I hear what you say, but it is a bit like splitting a hair. Whatever it is, whether it is chemical or radioactive, and whatever the cause, surely you must have a plan, because you do not know what the cause is going to be.
Sir Philip Rutnam
And as I have said, we have plans to deal with a wide range of threats. You have raised the question of a chemical weapon that was used. We have plans, together with our partners in the national security community, to deal with a very wide range of different types of threat, so of course we are prepared. There is always more preparation that can be done and always more learning, whether from experience here in the UK or from elsewhere in the world.
Anne Marie Morris
So, Sir Philip, what did you learn from the last incident, albeit it was different?
Sir Philip Rutnam
From the Litvinenko incident?
Anne Marie Morris
Yes.
Sir Philip Rutnam
If you look at the statements that have been made by the Prime Minister and other senior Ministers, you will have seen a number of references to the Litvinenko incident and what the Government have learnt from the handling of that incident at that time.
Caroline Flint
Is Salisbury safe?
Sir Philip Rutnam
It is safe as far as I know, but I want to reiterate that I was not asked to come to this Committee to speak about this very important national security incident.
Chair
Permanent Secretary, you are the permanent secretary of the Home Office. I would have thought it would be pretty obvious that we would want to talk about something as important as this.
Sir Philip Rutnam
I’m afraid not. What was obvious to me was that you wanted to talk about the Disclosure and Barring Service. If I had been given even half an hour’s notice that you wanted a statement on the record about public health, I would have come with statements for the record on public health. The answer to your question, Ms Flint, is yes, Salisbury is safe, as the Prime Minister and a number of other senior Ministers have said. Public Health England has advice on its website about the safety of Salisbury.
Caroline Flint
I’m sorry if you’re being put on the spot, Sir Philip. Can you tell me who attended the Cobra meetings on behalf of the Home Office?
Sir Philip Rutnam
Relevant Ministers will have attended.
Caroline Flint
I understand that, but which senior official in the Home Office attended?
Sir Philip Rutnam
The senior official who usually attends those meetings is the director general of the office for security and counter terrorism, Tom Hurd.
Caroline Flint
On the public health aspect, is it the Department of Health’s responsibility to ensure that its agencies such as Public Health England act to notify the public speedily about the risks or about whether it is safe? Do they ensure those messages go out? Is it a Department of Health responsibility?
Sir Philip Rutnam
The Department of Health leads on public health, but as you would expect in these circumstances, we are working very closely across government in relation to this incident. Because of its specialist nature, the Ministry of Defence and the Defence Scientific and Technological Laboratory are also closely involved.
Caroline Flint
Presumably at the Cobra meetings, on such a terrible situation as this, part of the discussion would be about how quickly whatever agency can secure for the public’s knowledge that it is now safe to move about in the area of Salisbury where this incident took place. That would be part of the discussion at a Cobra meeting.
Sir Philip Rutnam
Of course. Communications with the public are absolutely a standard topic for discussion. It is a core element of the Government’s job.
Caroline Flint
Obviously it is about the time between knowing that it was safe, and letting the public know that it was safe—or, for that matter, informing the public about any precautions that they should take. That is what the Chair is interested in: what seemed to be quite a long time delay for the information to be released to the public. Are you saying that all of that would have been discussed at the Cobra meeting?
Sir Philip Rutnam
I am not going to go into the detail of discussions in Government committee meetings, but I believe that as former Ministers you are familiar with the general structure of Government decision-making. There is, of course, a committee called Cobra, which meets from time to time in relation to special incidents. Communications to the public are of course something that that committee discusses.
Chair
Thank you for that for now, but we will obviously come back to this. I know that our sister Committees are watching closely what happened here. Clearly it is a serious and concerning matter, which we may need to be prepared for in future. We will want to look back at how well this has gone. I want now to move on to the main session, looking at the Disclosure and Barring Service and the IT contract.
Lee Rowley
Let’s start with the business case, which was kindly sent to the Committee last week. Could you, Sir Philip, Ms Downey and Mr McPherson, tell me what specific outcomes have been achieved in the business case since it was baselined on 18 May 2012?
Sir Philip Rutnam
I will ask Mr McPherson to say something about that.
Scott McPherson
The business case was intended to achieve a wide range of things, one of which was merging the Criminal Records Bureau and the Independent Safeguarding Authority, which has been achieved. It was intended to introduce an update service for the public, responding to public desire to have a more flexible and portable disclosure regime. That has been achieved. It was clearly also intended to modernise the systems within the Disclosure and Barring Service, which are the key subject of the NAO Report, and which the NAO has identified as being significantly delayed. The final elements of it are still subject to ongoing negotiation between DBS and its supplier. It has not yet all been achieved, but a large number of the original benefits have already been delivered.
Lee Rowley
Could you just give me one-word answers—yes or no—about whether the items on this list have been achieved or not? Financial savings of up to £37 million per annum?
Scott McPherson
No.
Lee Rowley
Overall contract costs reduced by 15% to 20% over the lifetime of the five-year contract that was let?
Scott McPherson
No.
Lee Rowley
Introduction of electronic applications in full for all areas?
Scott McPherson
Not for all areas, no.
Lee Rowley
Introduction of electronic referrals in full for all areas?
Scott McPherson
No.
Lee Rowley
Improved matching algorithms that help automation?
Scott McPherson
No. I suspect that you are going to read me a long list of areas—
Lee Rowley
I am indeed, so if you will just bear with me, I will finish them. Innovative use of social media and other ICT to improve the customer experience through the issuing of electronic certificates?
Scott McPherson
I think some of that has been delivered.
Lee Rowley
Which electronic certificates are now being dealt with? I understand that the NAO Report suggests that that is not the case.
Adele Downey
The basic certificate that we introduced in September—
Lee Rowley
Is it offered electronically?
Adele Downey
Yes.
Lee Rowley
Excellent. But the remainder are not, because phase 2 has not been delivered?
Adele Downey
Within the enhanced disclosure service, 85% of applications are received electronically through our registered bodies. The modernisation programme will deliver that for the full population.
Lee Rowley
So it has not been delivered for the full population?
Adele Downey
No, that is still under discussion.
Lee Rowley
Final one: reduced costs for customers?
Scott McPherson
No, that has not been delivered.
Lee Rowley
No. In fact, quite the contrary—the costs are more expensive than was expected. It was originally expected to be £10; it is £13 for the update service. Is that correct?
Scott McPherson
That is correct.
Lee Rowley
Can we run through that list again in terms of whether you expect them to be realised by the end of the contract? Annualised financial savings of £37 million?
Adele Downey
So—
Lee Rowley
A yes or no answer.
Adele Downey
It’s not always easy to give a yes or no answer.
Lee Rowley
I know, but that is why you are the chief executive. So, yes or no?
Adele Downey
As you know, there has been a surplus made in the contract, and we plan to have a review so that we can pass those savings—
Lee Rowley
I am talking about costs specifically—£37 million in savings on an annualised basis.
Adele Downey
Yes, we do expect cost savings to be made through this contract.
Lee Rowley
Thirty-seven million?
Adele Downey
I don’t know the exact number, but we do—
Lee Rowley
Do you expect it to be in that ballpark?
Adele Downey
Hopefully. I am happy to come back to the Committee and confirm what we expect.
Lee Rowley
The NAO Report does not suggest that, but I would be very grateful if you could let me know by March 2019 whether you expect to achieve that. Overall contract costs reduced by 15% to 20% over the lifetime of the contract?
Adele Downey
Yes.
Lee Rowley
You expect a reduction in costs?
Adele Downey
We expect some cost reduction to be made, so I will confirm both of those to the Committee.
Lee Rowley
How does that square with a total cost of £885 million against the expected £656 million that was proposed in 2012?
Adele Downey
The original business case covered the whole of the operating costs for DBS for a five-year period. It was based on a certain number of applications that we would receive, but demand has increased significantly over those five years. Two thirds of the increase in cost is down to demand.
Lee Rowley
Let’s work through the baseline. One third is not down to increased demand, and therefore your costs will have risen, not reduced.
Adele Downey
We are a self-funding organisation, as you know. We have to fund the services. The services are self-funded, and at the moment we have declared a surplus because of those issues.
Lee Rowley
But I said a moment ago that we are talking about just costs, not income. I don’t understand how you reconcile the movement from £656 million to £885 million with the 15% to 20% reduction in costs that you told me two minutes ago you expect to achieve.
Adele Downey
I am doing that on the basis of a like-for-like comparison with the original demand profile.
Lee Rowley
Okay, explain that a little more. It was £656 million in a five-year contract, and it is now at £885 million. How is that a 15% to 20% reduction?
Adele Downey
Because if it was done on a like-for-like basis, it would have been a reduction.
Lee Rowley
But you have just told me that two thirds of the increase is down to the non-like-for-like element—in other words, the demand change—so one third of the cost increase is therefore still a cost increase. How can there be a 15% to 20% reduction in that cost?
Adele Downey
Some of that was to do with the transition from Capita to TCS, which was done at the beginning of the contract. The contract’s five-year life didn’t start until TCS took over in March 2014, which is why it takes it up to March 2015. Some of those costs were against the 2012 baseline.
Lee Rowley
So the totality of that would not be a cost reduction of 15% to 20% on that basis. Let’s move on. Are you expecting the introduction of electronic applications in full by March next year?
Adele Downey
That is subject to discussion at the moment. We have introduced it for basic certificates, and we are having commercial discussions with our supplier to agree when the final element of the modernisation programme will be implemented. That is what we are talking about.
Lee Rowley
So it’s unknown—okay. Introduction of electronic referrals in full by next year—unknown as well?
Adele Downey
That has already been introduced.
Lee Rowley
In full?
Adele Downey
Yes.
Lee Rowley
Okay. A moment ago, I was told that it wasn’t done in full.
Adele Downey
The barring element has been done in full. That is the referrals, which is slightly different from the certificates.
Lee Rowley
Okay, so not in total. Improved matching algorithms by March 2019?
Adele Downey
That is part of the next phase of the delivery of the modernisation programme. It is subject to discussion at the moment.
Lee Rowley
Unknown—okay. Innovative use of social media and other ICT to improve the customer experience, including the full issuing of electronic certificates by March next year?
Adele Downey
Again, that is part of the discussion.
Lee Rowley
Unknown—okay. Reduced costs for customers?
Adele Downey
Again, that is part of the final discussion.
Lee Rowley
So that one’s unknown as well. Okay, great; thank you. Can we move on to the benefits? The benefits case and the benefits of this project are not currently being tracked. Is that correct?
Adele Downey
We do track benefits. We report into the Government Major Projects Authority on the financial savings that were expected by this programme. We do report in what our financial position is. Some of the benefits will come with the next phase of the modernisation—in other words, further efficiencies within my organisation, which will be tracked as soon as that has been implemented.
Lee Rowley
Can you tell me what the latest position is on your benefits, as you are tracking them right now?
Adele Downey
We have put forward to the Cabinet Office where we are with the project.
Lee Rowley
So can you tell me what they are?
Adele Downey
I don’t have that number to hand, I’m afraid. I can come back to you on that.
Lee Rowley
Okay, so you are coming to a Committee to talk about the Disclosure and Barring Service without being able to tell us what the benefits of what you have delivered are?
Adele Downey
There are a lot of benefits that we have delivered.
Lee Rowley
I’m giving you the stage to tell me what they are.
Chair
Lay it out for us.
Adele Downey
There have been a lot of benefits, in terms of the implementation of the update service for more than 1.2 million of our customers, who find it of great benefit. There have been benefits from merging the Independent Safeguarding Authority and the Criminal Records Bureau, which are able to share more information between each other. We have introduced benefits by implementing a new product called Basic last September. We have already issued more than 300,000 applications through that service, which include digital front-end—the first digital application we implemented in DBS. We have also implemented the new modernisation in our barring service.
Lee Rowley
Are the benefits that were specifically in the business case on 18 May 2012 still being tracked, rather than the wider ones that you have just been describing?
Adele Downey
As you will be aware, we reviewed the benefits when we reviewed the business case in 2014. We reviewed the update service applications in that and changed the forecast for those. We have been tracking to that forecast for the past four years. We are measuring ourselves against the 2014 business case.
Lee Rowley
Paragraph 13 of the NAO Report says: “The wider benefits expected in 2012 are not being tracked”. A moment ago, you told me they were. Which one is correct?
Adele Downey
There are some that are. The wider benefits that will come as a result of the full implementation of the modernisation programme are not yet being tracked because they have not been realised yet.
Lee Rowley
Okay, so they are not being tracked. In the business case, it states clearly on page 57 that the benefits case for the programme will be continually monitored. When was the decision made to stop monitoring them and who made that decision?
Adele Downey
We have not stopped monitoring them; they just have not been realised to be monitored. We know what we expect to be delivered by the modernisation programme, but they have not been realised yet.
Lee Rowley
I understand the difference between whether benefits have been realised or not; I am asking whether benefits are being tracked to assess whether they have been realised. Are benefits being tracked to assess whether they have been realised? A moment ago, you told me no.
Adele Downey
We report to the Home Office on progress against delivery of the business case. We report against the benefits that are being achieved and the benefits that will come with the future implementation. It is tracked, but we have not realised all the efficiencies expected yet. That will not happen until we deliver the modernisation programme, which is under discussion at the moment.
Lee Rowley
The conclusion I should therefore draw from your witness statement is that paragraph 13 of the NAO Report is not correct when it says: “The wider benefits expected in 2012 are not being tracked.” It is a very clear statement.
Adele Downey
I am not quite sure what they mean by the wider benefits. I think some of it might be to do with the wider safeguarding benefits of the whole regime. If it is that, they are not being tracked.
Chair
I think we need to bring in Steve Corbishley from the NAO just to clarify what the NAO’s definition is in the Report, which I should stress is in an agreed Report. Can you give a brief clarification about whether you agree with Ms Downey’s interpretation of what you mean by the wider benefits?
Steven Corbishley
We talk here about the ability of the modernisation programme to deliver the safeguarding duties through more frequent checking and thereby improving. It is the safeguarding benefits that we have been talking about and the means by which you get there.
Chair
So Ms Downey is correct in her interpretation of that.
Lee Rowley
Can we move on to the contract? Can Sir Philip, Ms Downey or Mr McPherson tell me why you were prepared to enter into a commercial contract with an apparent margin of 30% gross and 22% net?
Sir Philip Rutnam
I was not personally involved at the time and I was not in the role at the time. I understand that this was the contract that offered the best quality and that came top for a mix of quality and cost. Typically, in these assessment processes you are looking at a mix of quality and cost. It was the contract that came top of the evaluation process when we looked at those criteria together. I am afraid that that is as much detail as I can provide.
Lee Rowley
So to obtain that level of quality, you were accepting an incredibly generous margin on top of it.
Sir Philip Rutnam
I think there is another important point, which is that the contract also provided a contractual structure for a very significant transfer of risk to the supplier.
Lee Rowley
I would like to talk about that transfer of risk, because page 20 of the NAO Report states: “The contract payment mechanism is linked directly to volumes and not linked to progress on modernisation.” I am surprised by your statement that there was a sufficient risk linkage when the Report suggests that that is not the case.
Sir Philip Rutnam
Adele will be able to provide a more detailed answer, but as I understand it, the contractual structure essentially provides for TCS to be paid through what is known as a ticket price. That ticket price falls as expected dates for modernisation are achieved. If those dates are not achieved, there are financial effects on both parties, and there is a significant financial risk taken by our supplier. From the best advice I have had, this contractual structure provided for a significant transfer of risk. Whether it exactly justifies those margins is another matter, but that is what I understand about the contract. Adele might want to add to that.
Adele Downey
The original contract, as I understand it, was to include a recovery by the supplier for the development and investment cost to implement modernisation over a three-year period through the ticket price, which is associated with whatever the demand is at that time. The delivery of the modernisation service has taken a bit longer than expected, and the cost to run the existing system is more expensive than it is for a modernised system. Volume has also increased, and there is a cap on the amount of money the supplier is allowed to recover, so they cannot over-recover profit. That is a protection for us but a risk for the supplier. That is how the contract was constructed.
Lee Rowley
So would you accept that the contract is primarily on volume, with the modernisation being a secondary element? Or is the flipside—modernisation being the primary element and volume being secondary?
Adele Downey
It is the first one. This is primarily a service contract. It is for the supplier to deliver BPO services to us and charge us through the ticket price. Modernisation was a way, as part of the original bid, of improving that service and delivering efficiencies. They were connected, but it is not an IT contract; it is a service contract.
Lee Rowley
So the ultimate incentive in this contract is volume, which can be affected by external factors—demand—rather than modernisation. There was a flaw in the initial approach if modernisation was to be prioritised, and the business case at least suggests that it was to be.
Adele Downey
We tried to redress some of that in the 2014 business case. There are elements of the 2012 business case that, with hindsight, we might have focused slightly differently.
Sir Philip Rutnam
Can I add to that? The fall in the ticket price over the life of the contract is very important, in terms of the incentives it creates for the supplier. The supplier will manage to cover their cost only if they manage to modernise the system so it costs less to run. That was the concept behind the structure.
Lee Rowley
Sure, but the primary approach was volume, rather than modernisation. Let me come back to the initial point. What justification was there for a margin of 22% to 30% for this kind of contractual structure? That is an incredibly high margin for contractual outsourcing activities.
Sir Philip Rutnam
I can only repeat the answer I gave earlier, which is that to the best of my knowledge the supplier came top in the process through the mix of quality and cost. However, it is important to understand that there is a significant transfer of risk. I go back to my point that I don’t think it is right to characterise the contract as being dominated by volume. For the supplier to get the result economically, it needs to modernise the service.
Lee Rowley
I’m not characterising it personally as being linked predominantly by volume; it is the National Audit Office that is characterising it in that way in paragraph 3.9 on page 20. I am still unclear about the 22% to 30% margin. I have never seen such a margin in 15 years of commercial activity. I would be interested to know which of the contracts in your purview operate at such margins. For example, was the previous Capita service at that level of margin?
Adele Downey
I don’t know.
Chair
Adele Downey, can you shed any light on why this margin was so high? Were you around at the time?
Adele Downey
Yes, I was around at the time, but it was a Home Office-led contract negotiation, so I am not aware of that. None of us were there at the time, but we can probably find out and let the Committee know.
Lee Rowley
That would be really helpful.
Chair
Were you aware of the margin at the time?
Adele Downey
No, I wasn’t.
Chair
Not until it landed with you.
Adele Downey
It wasn’t part of my remit at the time.
Shankar Narayanan
On the point you referred to about margins of 22% to 30%, I might seek clarification from the NAO but to my knowledge that refers to TCS’s corporate profit, not the profit from this contract. The profit from this contract was estimated at 22% gross, not 30% gross. I just want to clarify that point.
Lee Rowley
Okay, but it’s still double-digit and above 20%. We can all agree on that.
Shankar Narayanan
Yes.
Lee Rowley
Okay, great. Just to finish up on the contractual point, according to the NAO Report, and as Sir Philip indicates, quality was prioritised. TCS’s approach was apparently “substantially better technically” and it was “the only bidder who provided the desired approach to commercial risk-sharing and delivery.” We have obviously debated risk sharing, but can we debate the other two points? With regard to “substantially better technically”, can the witnesses explain how we got ourselves in a position where a contract for this volume was proposed to be delivered with a big-bang approach—a single drop of functionality? It is totally contrary to the PRINCE2 principles.
Sir Philip Rutnam
I recognise the question. I was not in the organisation at the time, so I don’t have personal visibility—
Chair
In that case, do you think it was a good idea to do it in—
Sir Philip Rutnam
That is a different question.
Chair
Well, that is the one you are dodging.
Sir Philip Rutnam
With hindsight, I think quite a number of things should have been done differently in relation to this programme.
Chair
Like what? Could you give us some precise examples of what you would have done differently if you had been in charge?
Sir Philip Rutnam
As the NAO Report helpfully makes clear, the timescales were over-ambitious. To my mind, there was a lack of realism in the programme planning, and we all know that key to the success of any major change programme is to plan it effectively—to test deliverability against the whole range of risks in the programme. So I think there was a lack of realism. There was clearly quite a lot of confusion about specific elements of the technical solution, including cloud hosting or not. That added some delay to the programme, and cost. There were some issues around the transition, which looked to me like the transition from Capita to TCS. That looked to me like it was under-scoped, in terms of complexity. So I think there are a whole range of things that, with hindsight, could and should have been done differently, and lessons that can be learned. On the specific question of whether one should take a big-bang approach, my own experience of IT programmes over the last five or six years has been to move markedly away from single-solution, big-bang approaches and to seek to make the approach much more agile and much more incremental, to try to build into the programme the opportunity to learn as one goes along—and “learn” means that if you are going to fail, you fail quickly and you identify the path that is most likely to lead to success. So the approach is much more iterative and less single solution based. That is the philosophy. It is the philosophy that we are applying in some other areas; it is the philosophy that I have applied in other areas in the past.
Lee Rowley
I completely agree; project management has moved massively in that direction. But the reality is that this project was delivered, according to the business case, under PRINCE2 methodology, and a key component of PRINCE2 methodology is splicing up the project into deliverable drops. This clearly had not been done here, and it was not even objectively tried at the beginning; it took two or three years to work out that that was necessary.
Sir Philip Rutnam
I am not disagreeing. The early years of this programme were not successful.
Chair
Ms Downey, you were at the DBS in 2012. What was your role at the time?
Adele Downey
In 2012, when I joined the DBS, I was the deputy chief executive, with responsibility for corporate services.
Chair
So you weren’t looking at these outside contracts yourself?
Adele Downey
No.
Chair
Sir Philip, who in the Home Office was responsible at the time, other than your predecessor?
Sir Amyas Morse
Sorry, Chair, but may I interject? Does “corporate services” not mean the information environment?
Adele Downey
In corporate services, I was responsible for overseeing finance, HR and the change directorate. On 1 December, when the DBS started, the contract had already been let and the process was already under way. The DBS acknowledged quite early on that a big-bang approach was not right, as Sir Philip has just acknowledged, and sought to change that, which we did with the 2014 business case. We moved to spread out the implementations. We have now implemented the first phase of this, with barring and basics, and I want to learn from that implementation to inform the implementation for the next phase; that is subject to discussion with TCS.
Chair
It seems extraordinary, first, that the DBS was not properly consulted by the Home Office, when you were central to this whole change and, secondly, that with your responsibility for change and finance you did not have more of a direct role. Can you explain what happened?
Adele Downey
The contract was put in place before DBS started. DBS did not start until 1 December 2012. CRB was involved in it, with ISA, but it was a negotiation driven by the Home Office.
Sir Geoffrey Clifton-Brown
Sir Philip, you will have looked back at the papers. Is it not extraordinary that before they even scoped this project, let alone let it, the Home Office did not involve the very body that was going to have to implement it?
Sir Philip Rutnam
I believe that DBS was involved—
Adele Downey
CRB.
Sir Philip Rutnam
Sorry, CRB was involved. The predecessor bodies were involved, but this was a Home Office responsibility during the procurement and the mobilisation phases of the contract, until it was passed to DBS in late 2014.
Sir Geoffrey Clifton-Brown
If CRB was involved, which had had years of experience of this, it must have given the Home Office and your predecessor some advice at the time. Presumably you have looked at that advice. Was it not extraordinary that the Home Office did not take some notice of that advice?
Sir Philip Rutnam
I can say only that yes, I would have expected them to have provided some advice—I assume they did—and I would have expected the Home Office to pay attention to that advice, but I am afraid that I cannot comment on what exactly that advice said and how the Home Office reacted, not having been through that. I completely accept that the primary responsibility for letting the contract, setting up the procurement process, awarding the contract and then the early phases, before it was handed over to DBS, rests with the Home Office.
Sir Geoffrey Clifton-Brown
Surely something as basic as underestimating the costs of obtaining the information from the police because the IT systems were not compatible with the IT systems that TCS were going to run—that cost another £70-odd million—should have been foreseen at the time.
Sir Philip Rutnam
I think that a number of things could and should, with hindsight, have been foreseen, and more realistic estimates made on both schedule and cost.
Lee Rowley
On the basis that we are accepting that most of this contract seems to have been flawed at the beginning, I will move on to TCS’s view. Mr Narayanan, you agree that this was a significant contract, correct?
Shankar Narayanan
Yes, it was.
Lee Rowley
With a large number of users?
Shankar Narayanan
Yes.
Lee Rowley
With significant complexity to it?
Shankar Narayanan
Yes.
Lee Rowley
So why did you sign the contract, which was predicated on only one functionality drop?
Shankar Narayanan
For us, the key aspect that made us bid for this contract was the opportunity to modernise a public service. We are an organisation that provides IT transformation for many businesses. We saw this as an opportunity to transform a public service, and that was one of the primary reasons why we bid for the contract.
Lee Rowley
If you are an organisation that provides IT transformation, you will know that IT transformation is usually flawed at the outset by poor definition or poor approach. If we are all comprehensively accepting that there was a poor approach with regard to just one functionality drop, why did you, as the provider, not point that out at the beginning?
Shankar Narayanan
When we bid for the programme, we bid against a specific set of requirements. Clearly, as my colleagues pointed out, in hindsight a lot of things could have been done differently in terms of planning. When we looked at it, we underestimated the complexity of this project. We saw these as requirements, which can be technologically enabled, but we did not have a view of what it takes for the DBS to implement these systems and to launch this service. We underestimated the complexity of the implementation at that point in time.
Lee Rowley
If you did not have a view of the complexity, how could you bid, with any semblance of accuracy, on how you could deliver this contract successfully?
Shankar Narayanan
As I said, we had a set of requirements—a huge number of requirements had been given—so we had a view of what technology was in place. Like every other bidder, we used the information that was available to bid for this programme. So we had to find a solution. At that point in time they had detailed a solution through a competitive bidding process, and it was felt on both sides—the customer side as well as our side—to be implementable. We had taken feedback on the implementability and we had to go by the collective view that this solution was fit for purpose.
Lee Rowley
Okay, so there was a failure on both parts to understand the contract, in terms of what it could achieve and what was necessary in order to deliver it. What testing did you do, as a responsible partner, on whether this solution was actually wanted and needed? I am thinking more about the update service, which I know we will come on to in more detail in a moment. What assessment did you do of the requirements? You are paying a lot of store in the requirements being given to you by the client, effectively. What testing did you do about the appropriateness of those requirements?
Shankar Narayanan
We had to elaborate the requirements as part of this programme as soon as we transitioned this service from the incumbent provider. We spent an enormous amount of time working with DBS to elaborate the requirements and work on a design. So considerable effort was put into understanding the requirements in greater detail and designing a solution. During that period it was decided that it was going to be a lot riskier to launch the service in a big bang, so it was decided to break down the implementation into multiple phases.
Lee Rowley
I am still perplexed by this notion that a one-drop big bang would ever have been acceptable. I know that hindsight is a wonderful thing—that is probably the get-out clause that the witnesses are going to use today—but I was working in project management in 2012, as a junior individual, and I knew then that big bangs were not appropriate, particularly for this level of records, users, customers and front-facing activity. I am amazed by the view of the witnesses that it was all fine in 2012 and suddenly we have had this damascene conversion to an agile approach since then.
Chair
Did TCS do other single-drop IT projects?
Shankar Narayanan
We have done big-bang implementations in the private sector.
Chair
Successfully?
Shankar Narayanan
Absolutely.
Chair
Can you name a couple?
Shankar Narayanan
We launched the online services for Marks and Spencer, which was a big-bang implementation.
Chair
No piloting?
Shankar Narayanan
Piloting was of course done. You will do a number of tests, but it was a big-bang implementation.
Chair
Anything else in the public sector?
Shankar Narayanan
In the public sector the one that comes to mind is the Child Maintenance Group, but I wouldn’t say it was a big bang. The first functionality was implemented big bang.
Lee Rowley
We accept that the definition was not great. We accept that the initial discussions to be able to ensure that it was equipped to deliver this work were not sufficient and then we got ourselves into a problem a couple of years later. We are now at a place where the project is substantially over-cost, over-time and without a delivery end point. How many times have you recommended to the relevant individuals in the client to pause this programme or stop it?
Shankar Narayanan
I think that between DBS and TCS we still believe in the solution.
Chair
That is not quite the question that Mr Rowley was asking. How many times have you advised to pause it or stop it? From that answer, you are saying not to stop it.
Shankar Narayanan
We have not advised to stop it. We have certainly come together and discussed different ways of working, and moved this programme into adapting agile methods. That helped move things along a lot faster at that point in time. As soon as we realised that we were not making progress, sometime in the middle of 2015, we re-designed the ways of working, in order to improve the momentum behind the programme and subsequently we have been able to make progress and implement the first phase, which is the basics and barring services, in September.
Chair
Were there agreed fees on contract variation, or did you have to negotiate those?
Shankar Narayanan
The contract variation has been enabled only from the perspective of the agreed upon scope changes and the agreed upon delays, as a result of some of the changes to the infrastructure. Those are the aspects that have been agreed upon. Anything beyond that is still yet to be agreed upon between TCS and DBS.
Chair
That is still the ongoing legal arguments.
Shankar Narayanan
That is the subject matter of the current discussions.
Lee Rowley
What do the DBS and the Home Office need to do differently in order to get this right?
Shankar Narayanan
In terms of the ways of working, we have learned a lot over this period and we know exactly what is required to be done. There is a clear understanding of the remainder of the scope that is required to be delivered. We are working together to agree a pragmatic and realistic plan to implement the rest of the systems. We know exactly what it takes. There is a learning in terms of how fast the registered bodies can take this change on, so we are working together to see how we could phase the second phase of the implementation over a longer duration. So there is a significant degree of learning that is being incorporated into the remainder of the planning of the disclosure release.
Lee Rowley
I am interested in something, and the question will be put to the civil servants in a moment. If your view is that this contract is still recoverable or deliverable—my words, rather than yours, but you understand where I am going—where does it have to get in order for you to recommend stopping or pausing it? I see a contract that is 46-plus months behind schedule, and growing, and a contract that is, at least in part, £200 million over cost. So how many millions more does a contract have to be over cost, or how much longer does a contract have to be undelivered, before somebody says, “That’s it. We can’t do it”?
Shankar Narayanan
In terms of the functionalities required for the remainder of the release, a large part of the functionality has already been developed; there is very little that is required to be built into the system. A lot more testing will need to take place. So I don’t believe that this contract needs to be stopped. It is recoverable and implementable. We are in the middle of discussions, and in about a month’s time we should have a view of when the remainder of the modernisation will be delivered, and in both DBS and TCS we are confident, with the kind of reviews that we have undertaken over the last few months, that the remainder of the modernisation can be delivered in a realistic timeframe.
Lee Rowley
If you are confident that it is recoverable and implementable, why don’t I have a date for when it will be recovered and implemented?
Shankar Narayanan
That is part of the discussions that are currently under way, and we are also discussing how fast the implementation needs to happen, to take the 2,250 registered bodies along with this change.
Lee Rowley
Based on the resources you have now, what is your assessment of how long it will take to implement?
Shankar Narayanan
I do not have a date in mind, Sir. I would not want to tell the Committee—
Lee Rowley
So how can you have confidence that it is implementable?
Shankar Narayanan
I am confident that it is implementable, but in terms of the plan it has to be a joint exercise between TCS and DBS, which is currently under way, so I would not want to provide any dates at this point of time.
Lee Rowley
Is it implementable or recoverable before the end of the contract in March 2019?
Shankar Narayanan
Again, that is what we hope to achieve, and we are working towards a plan.
Lee Rowley
Good business practice says that you can usually define the level of confidence you have. What level of confidence do you have with regard to the statement you just made?
Shankar Narayanan
Again, I would not want to make a statement without doing a proper due diligence—
Lee Rowley
So you are telling me that this is implementable and recoverable and you have confidence, but we don’t know when it will be implementable or recoverable, or how much confidence you have?
Shankar Narayanan
As I said, until I complete the due diligence with DBS, I will not be able to make a definite statement on that.
Lee Rowley
Okay. I have a couple more questions, and I am interested in your wider view. Tell me what portion of blame I should apportion to you as the provider, as opposed to the client, with regard to the position where you ended up?
Shankar Narayanan
That is a matter of discussion at this point in—
Lee Rowley
Give me your view.
Shankar Narayanan
No, I would not be able to comment on it. That is a matter of discussion between TCS and DBS. That is one of the outstanding negotiations and I would not be able to give a view at this point in time.
Lee Rowley
Okay. In your view more generally, rather than apportioning blame, which part of this contract has failed the most and why? It doesn’t matter why—just which part is the most catastrophic failure.
Shankar Narayanan
The Report identifies a couple of areas and we acknowledge that. It is about delays to the contracting, delays to the transition—
Lee Rowley
I am asking you to define the hierarchy, Sir—which one is the worst? If we are going to learn, we have to understand which ones are worst.
Shankar Narayanan
We have all discussed this before—the complexity of this modernisation has been underestimated. The risk profile has been underestimated. The aspect of bringing together a set of applications, a set of infrastructure which has changed over time, the registered bodies, along with the change, as well as orchestrating all of these with respect to system integration and service integration—these were areas where the complexity was a lot greater, and that is the reason why the programme is substantially delayed.
Lee Rowley
Just before I hand back, I want to ask a few questions to everybody about where we are today. What assessment has the panel done of the unnecessary costs that were imposed on businesses, given the state of the programme? How much more were your customers paying?
Sir Philip Rutnam
It all depends on what the counterfactual is, to use a jargon term. There was a counterfactual in the 2012 business case, but the truth is that it was never realistic.
Lee Rowley
Okay, but the 2012 business case is the baseline, so let us go on the basis of the baseline.
Sir Philip Rutnam
There is a set of numbers in the NAO Report that show what was projected to happen to charges had the 2012 business case been delivered, but it was never going to be delivered. There is also a set of numbers relating to the 2014 business case, because it was soon realised that the programme, as launched in 2012, was not deliverable. Some significant—still not complete and comprehensive—corrective action was taken in 2014, and much more realistic estimates were arrived at. Compared with the 2014 business case, the gap between the charges to customers, as projected then, and now, is quite modest. I am afraid I don’t have the arithmetic in my head about what that turns into, in terms of million pounds. Can I make one other point?
Lee Rowley
We will come back to your other points. The number in the NAO Report is £304 million. There are businesses around this country and public sector bodies that have paid £304 million more than was expected, baselined against the 2012 business case. When will you be giving back that £304 million, given that you have a higher than expected surplus in this area?
Sir Philip Rutnam
As I said, the business case in 2012, on the basis of which that £304 million was calculated, was not realistic. It could not have been delivered. On your wider point, the way in which charges are set by DBS involves an annual setting. Essentially, the balancing between costs and income is done on an annual basis. There is no intention to go back over previous years and pass to the customers an accumulated set of savings that could never have been realised.
Lee Rowley
You are disavowing the 2012 business case, but you are running a higher than expected surplus. Therefore, you are in the unusually positive situation—unlike every other Government Department or section of a Government Department—of having more money than you expected. When are you going to give some of that money back to hard-pressed Government Departments elsewhere?
Sir Philip Rutnam
Principally it is because demand has turned out to be higher than expected. I will ask Mr McPherson to speak about fees.
Scott McPherson
When we are looking at fees jointly between us and DBS, each year we seek to set the fee level at a level that will recover their full costs, in accordance with “Managing public money”. “Managing public money” itself recognises that there will be circumstances in which fees will over-recover or sometimes under-recover. That may be due to changes in demand or changes in cost base. Both of those things are issues that DBS has experienced. Each year they seek to set a balanced budget. We are very clear that, having had a number of years with a surplus, we need to have a full and thorough review of the fees for the future, which we are planning to do jointly with DBS during the course of this financial year, and ensure that we set the appropriate level of fees. Hopefully having settled a contractual dispute, we will have a real understanding of the cost base for the future.
Chair
I want to bring in Sir Amyas Morse.
Sir Amyas Morse
I do not think DBS is in bad shape, either. You have charged £200 million so far on this contract. You must have made a profit in excess of £20 million, and you are still getting paid today. Notwithstanding the talk earlier about substantial risk transfer, I am finding it a bit difficult to see what the risk transfer has actually been. It sounds like you are on quite a good deal at the moment. I understand why you want to extend the contract, but I want to understand how much pain you have shared so far and how strong a position you are in, in terms of negotiating, given that you have actually got a lot of money.
Shankar Narayanan
The NAO has provided a view as of March 2017. It has reported that we made a profit of £5 million on the basis of £150 million-odd in revenues, so at that point in time, the proportion translates as about 3%. Since then the position has worsened. We are in the fourth year of the contract, and as the permanent secretary pointed out, the contract has been structured in such a way that the recovery of the costs for TCS towards transition, transformation and modernisation stops at the end of the third year of the contract. Therefore, at this point in time, we are being paid only for providing the services, and the cost of modernisation is being borne by us. So the position has significantly worsened since March 2017.
Sir Amyas Morse
So are you still in profit?
Shankar Narayanan
We are not in profit at this point in time.
Sir Amyas Morse
You are saying that you have spent more than you have received on this contract?
Shankar Narayanan
Absolutely. What we expect is that the outcome of the negotiations will give us some relief that puts us in a better position than we are in today. It is therefore in our interest to do whatever it takes to deliver the modernisation at the earliest point, so that we can get together better with DBS.
Lee Rowley
I would like to pick up a couple of points that Mr McPherson made. I am intrigued by your statement that you are now going to review costs. It is not like this massive surplus has come out of thin air. It has been accruing over a number of years, so why have we chosen only to look at the surplus and cost model now, rather than while the benefits of the cost model have been accruing over a number of different financial years?
Scott McPherson
We and DBS have looked at fees regularly in the past. We do that on an annual basis when we are setting the budget.
Lee Rowley
But there has been no change to fees in the last few years?
Scott McPherson
There haven’t been changes to fees.
Lee Rowley
But your surplus is still there. So if you had been looking at it, you would have changed it. If your objective was to put those two things more in balance, you would have changed it by now.
Scott McPherson
At the beginning of each year, we would look at forecast costs and forecast income from the fees with the aim of setting a balanced budget, so that DBS neither makes a surplus nor a loss. It is extremely difficult to do that in a business where two factors are at play. One is the level of demand, which is quite hard to predict; in fact, demand has increased, which means that DBS gets more fee income than might otherwise have been expected. The costs are also very difficult to forecast when you are in the middle of a modernisation programme. Those twin factors are reasons why, in the past, despite having set a balanced budget at the beginning of the year, by the end of the year we have found that a surplus has been made.
Lee Rowley
So we are accepting that there is an inability to model. On that basis, if you can’t model it—that is what I inferred from your statement—you would hand the outturn back when it was over the surplus. So why aren’t you handing the outturn back?
Scott McPherson
I wouldn’t want to give you the impression that we can’t model. We can model; it is just difficult when it is something that is based on public demand. At the end of the year, if a surplus is made, that is consolidated into the Home Office accounts.
Lee Rowley
But not back to the people who have paid it?
Scott McPherson
No.
Lee Rowley
I was intrigued by your statement that every year we set a fee level where it will recover its full cost. But that is not correct, is it, because the update service does not recover anything like its full cost in fact; it’s less than half?
Scott McPherson
What I was trying to say is that, overall, you will look at the overall level of fees that DBS is charging for its service, and its overall expected cost, with the aim of setting a balanced budget for DBS as a whole for that financial year.
Sir Philip Rutnam
The fees and charges guidance from the Treasury allows for a certain measure of cross-subsidy, and there are other cross-subsidies. For example, volunteers are issued with certain types of certificates for free.
Sir Geoffrey Clifton-Brown
Sir Philip, in 2012 your Department was instructed by the Treasury that this contract was to be let on the basis that the IT was to be kept in the cloud. By simply not communicating that to the TCS, the cost was £9.4 million. Was that not a pretty big oversight on behalf of your Department? Or £9.7 million; the amount is shown on page 22, figure 7.
Sir Philip Rutnam
I think the instruction came from the Cabinet Office rather than the Treasury. It was the Cabinet Office’s role in relation to oversight of the Government’s IT programmes. I do not know whether one can safely say that the delay in passing that information on was the cause of that extra cost—the £9 million. It is possible that if one had passed the information on earlier, there would still have been significant costs. However, I too was surprised to learn that there was a delay in passing that information on to the suppliers.
Sir Geoffrey Clifton-Brown
Having not passed it on in good time, there were then two additional costs relating to exactly the same matter in that table: an additional £5 million, and an additional £5.1 million. The total cost is a pretty shocking £19.8 million.
Sir Philip Rutnam
When I was talking earlier about lessons to be learned from this episode, I think I specifically mentioned hosting and the series of events in relation to hosting, whether on physical or cloud servers. Clearly, it is not a satisfactory position.
Sir Geoffrey Clifton-Brown
And that did not even take into account the £19 million on page 23 that the Home Office incurred, so that was a total of £38.8 million wasted.
Sir Philip Rutnam
I think that £19 million is the estimate that was made of the cost of using physical servers. That is not an additive £19 million, it is an alternative. It is, if you like, the £19 million that we were trying to save, but we did not save.
Sir Geoffrey Clifton-Brown
Moving on quickly, because I am under pressure from the Chair, this got off to a bad start, didn’t it? Why did the Home Office let the contract in 2012 and then allow Capita to continue for another two years, costing £71 million—figure 8, page 26?
Sir Philip Rutnam
I can only say that, on the basis of what I have learned about this episode through the NAO’s work and through discussion with teams in the Department, it was not planned adequately. The risks involved in this very complex modernisation programme were not sufficiently scoped. That would be my headline message.
Sir Geoffrey Clifton-Brown
I have two more quick-fire questions. If you look at that same figure—figure 8, on page 26—you put great store in the 2014 review, having got matters much more correctly costed. In fact, that figure shows that you have got only halfway there. There is still another £100-odd million worth of overruns even from the 2014 review. Surely after two years’ experience of the cost of operating the contract, the Home Office should have got a little more adept at working out what it was going to deliver?
Sir Philip Rutnam
I think what I said about the 2014 review was that it made a significant step. It was not a complete recognition of the challenges involved in the programme, but it was a significant step. In fact, I was referring more to the profile of charges on figure 12, for example. I take the point in relation to projected costs of the entire programme. However, it is important to remember that those costs partly reflect the characteristic of demand. It has turned out that customers have preferred to use standard and enhanced certificates rather than the update service. Remember that those do provide customers with a somewhat different thing. They get additional—
Sir Geoffrey Clifton-Brown
One final question: this contract was let for five years, and ends in 2019. There is an option to renew it for another three years. Are you likely to take that three-year renewal, in the light of what has been said today and in this Report?
Sir Philip Rutnam
DBS, which is the customer, supported by the Home Office, is in close commercial discussions with our supplier. I have to say that whether there is an extension will depend on whether the outcome of those discussions is satisfactory in terms of protecting taxpayers’ interests and delivering the safeguarding objectives. Adele might want to add—
Chair
Sir Philip, I think we would just ask that you write to us with the conclusion of the negotiations as soon as they are over. We reserve the right, of course, to call you back to explain that. Certainly, we reserve the right to call TCS back and Mr Narayanan, to get your answers to the questions that you feel unable to answer today, because this is absolutely vital for future contracts. Can I move on, Sir Philip? As Mr Rowley said, you have disavowed the 2012 contract. You have just acknowledged that the 2014 contract was a problem. You look a little embarrassed about the failure of this contract. It is another IT project failure in a Department that you became permanent secretary of less than a year ago. Are you not rather worried about the capability of your Department to let these large contracts? We have been looking at ESN and E-borders as other examples of projects that have gone wrong in the Home Office.