By Joshua.Chambers

30 Jan 2013

The failure of the Department for Transport to properly let the West Coast Mainline franchise sent shockwaves through the civil service. Joshua Chambers looks at the lessons to be learned – and how the DfT is responding

The tremors are still being felt. A string of mistakes in the Department for Transport (DfT) laid the £5bn contract it had awarded for the West Coast Mainline franchise open to a successful challenge in the courts – costing it £40m in reimbursement payments to bidders, and nearly £9m in further costs for the subsequent reviews of the fiasco. This earthquake within the DfT sent ripples throughout Whitehall, prompting broader questions about the pace of spending cuts, the capability of civil servants, and the checks and balances currently in place on large-scale procurement projects.

When the scale of the mistakes became apparent, the National Audit Office (NAO) conducted an independent review while the DfT commissioned its lead non-executive director, Sam Laidlaw, to investigate its internal failings. Both reports were published late last year, and led not only to changes within the department, but also to a wider examination of practices across government. According to Richard Douglas, head of the Government Finance Profession: “There are a lot of lessons within the Laidlaw Report, and there is work currently going on within government in response to that.” Meanwhile Peter Riddell, director of the Institute for Government, says that the failure sent “shockwaves” throughout the civil service and caused other departments to say: “We’ve got to make sure we don’t have the same problems.”

One key problem that Laidlaw identified was a failure of clear governance and regular oversight. “The organisational structure at the DfT failed to set out roles, responsibilities and associated accountabilities clearly, and the resources of the DfT were excessively stretched due to the government’s spending review and the competing pressures of other projects,” he wrote: in a swiftly-implemented change programme, the department had lost some of its most talented staff and crucial expertise in rail-franchising. “The budget cuts were taken in one go at the beginning of the Spending Review, and that had a significant impact,” notes Louise Ellman, chair of the Commons’ Transport Committee.

Indeed, Peter Smith, editor of the Spend Matters website, worked on the Office of Government Commerce’s 2008 capability review into the DfT – and at that time, he says, the team was “impressed” by the rail franchising operation. This was due in part to the leadership of a highly experienced senior responsible owner (SRO), Mike Mitchell – a 35-year veteran of the rail industry. But Mitchell left in 2010, and continuity of leadership deteriorated: the NAO expresses “surprise” that on the West Coast Franchise project the lead responsibility passed through a series of SROs.

The department has now restructured to create a new rail directorate and a single director-general responsible for the rail franchising programme: Clare Moriarty, who previously headed the corporate directorate and managed the department’s change programme. Smith notes that this represents a return to the previous arrangement: the DfT used to have a separate rail directorate but axed it to reduce costs and senior management numbers. The department will also “ensure the responsibilities of all individuals are clearly documented, widely circulated [and] well understood,” the transport secretary wrote in his response to the Laidlaw Report. The Civil Service Reform Plan has already called for all projects to have a single SRO and Katherine Kerswell, the director general of civil service reform, has said that the civil service needs to ensure there is greater role clarity throughout Whitehall (read the interview with Katherine Kerswell).

A second, connected problem identified by the NAO was an over-reliance on both internal assurance processes and the ‘gateway reviews’ conducted by the Major Projects Authority. As the NAO notes, “management took too much comfort from assurance processes that have a limited scope to identify issues,” adding that “gateway reviews are not a substitute for management controls.” The department has now promised to “establish a clear cycle of reviews at a senior level through the lifecycle of each franchise competition, monitoring progress against a clear timeline, and ensuring appropriate senior oversight”.

Smith says that the NAO’s observation has broader implications: “The Major Projects Authority need to take a hard look at why their gateway reviews didn’t stop [mistakes] happening.” Meanwhile, Douglas notes that a key lesson for all departments is “making sure that you have appropriate levels of quality assurance around models that are quite critical to decision-making.”

From now on, the DfT will “appoint external advisers for each competition to cover the key areas of financial, legal and technical input necessary to supplement our in-house teams,” the transport secretary told the House of Commons. This appears to run directly counter to the government’s efforts to reduce the use of consultants – but as Riddell says, “there is a perversity about this: the government came in and said: ‘We don’t want to use consultants,’ but when you have staff cutbacks, who’s going to be checking things?” While the problems at the DfT “won’t automatically result in increasing [use of] consultants,” Riddell thinks that government will become more flexible: “There is quite a lot of pressure to look afresh at consultants, and they have been used more in the last year or so.” Smith agrees: “I suspect we’ll see more push-back from permanent secretaries saying: ‘We need to do this. Whatever you think, I’m responsible for delivering my department’s objectives’.”

Laidlaw has also “highlighted a problem with skills,” Riddell says: the department cut head count so sharply that it lost essential commissioning expertise. The DfT is now conducting an “immediate skills review to inform the allocation of resource to each team,” says the secretary of state; it will report within weeks. Meanwhile, the government’s mid-term review promised a pan-civil service look at skills and capabilities, with the aim of identifying and plugging gaps.

The DfT has already started recruiting to fill holes in its own capabilities. Just after the failure of the West Coast franchise programme, former cabinet secretary Lord O’Donnell said that the “arbitrary” salary limits in government are “unhelpful” when seeking the best procurement professionals, and Riddell also thinks that departments need to learn from the Olympics – for which high salaries were paid to the best project managers. However, Kerswell has told CSW that the salary limits won’t change in the near future.

More broadly, Laidlaw criticised the DfT’s approach to procurement and its failure to build relationships with suppliers. Its ‘anonymous’ bidding system concealed suppliers’ identities from its own staff – including ministers – in an attempt to ensure neutrality, but Smith says that these days only the DfT uses this technique: it’s generally regarded as “overly bureaucratic and a bit pointless: it was always pretty damn obvious whose bid you were reading”. The department also failed to provide the correct information to suppliers, and the Laidlaw report suggests that the DfT should consult suppliers more and ensure there’s a “credible timeline” for complex procurements to reduce the time pressure on staff.

One broader effect that Laidlaw’s report may inadvertently have is a weakening of the drive for civil servants to take more risks: if the lesson learned is that procurements must be invulnerable to legal challenge, officials may be still more reluctant to procure in innovative and flexible ways. Riddell says the report highlights the need for a proper framework so that risks can be more accurately assessed and better managed. But Smith thinks that, ultimately, the DfT’s failure and the resulting furore “will make people even more cautious… none of it plays into an attitude of doing clever negotiations or taking a risk on a small supplier”.

The DfT has now begun to rebuild its capabilities, skills, management systems and procurement processes. Other Whitehall departments are now inspecting their early-warning systems, and ensuring that their structures, abilities and lines of command haven’t been weakened by the same changes that left the DfT rather badly equipped for the job in hand.

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