Session 2008/2009

Tenth Report

PUBLIC ACCOUNTS COMMITTEE

Report on
The PFI Contract for
Northern Ireland’s
New Vehicle Testing Facilities

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 2 April 2009
Report: 35/08/09R (Public Accounts Committee)

This document is available in a range of alternative formats.
For more information please contact the
Northern Ireland Assembly, Printed Paper Office,
Parliament Buildings, Stormont, Belfast, BT4 3XX
Tel: 028 9052 1078

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 Paul Maskey *** (Chairperson)
Mr Roy Beggs (Deputy Chairperson)

Mr Thomas Burns ** Mr Trevor Lunn
Mr Jonathan Craig Mr Mitchel McLaughlin
Mr John Dallat Ms Dawn Purvis
Mr George Robinson **** Mr Jim Wells *
Mr Jim Shannon *****

* Mr Mickey Brady replaced Mr Willie Clarke on 1 October 2007

* Mr Ian McCrea replaced Mr Mickey Brady on 21 January 2008

* Mr Jim Wells replaced Mr Ian McCrea on 26 May 2008

** Mr Thomas Burns replaced Mr Patsy McGlone on 4 March 2008

*** Mr Paul Maskey replaced Mr John O’Dowd on 20 May 2008

**** Mr George Robinson replaced Mr Simon Hamilton on 15 September 2008

***** Mr Jim Shannon replaced Mr David Hilditch on 15 September 2008

List of abbreviations used in the Report

List of Abbreviations used
in the Report

The Agency Driver and Vehicle Agency

PFI Private Finance Initiative

C&AG Comptroller and Auditor General

MOT Ministry of Transport (vehicle test)

DFP Department of Finance and Personnel

Executive Summary

1. The Department of the Environment’s Driver and Vehicle Agency (the Agency) is responsibility for conducting vehicle tests. By the mid-1990s, the Agency’s vehicle testing equipment was outdated and increasingly prone to breakdown. In March 2001, it signed a Private Finance Initiative (PFI) contract costing £57 million for the design, finance and build of 61 computerised test lanes at its 15 test centres.

2. The contract for this project stipulated that vehicle tests must take no longer than an average of 18 minutes and customer waiting times for tests must not exceed an average of 14 days. However, the Agency experienced serious problems and its customers were subject to excessive and unacceptable waiting times, particularly in the early years of the contract.

3. A number of factors external to the project, particularly a Civil Service-wide strike during 2004, impinged upon vehicle testing performance in the early years of the contract and the Committee recognises that the Agency’s performance in terms of waiting times is now much improved. The Agency also welcomes:

the high level of customer satisfaction;
the fact that fees in Northern Ireland are lower than in Great Britain and the Republic of Ireland; and
the availability of the MOT test at times which are more convenient for customers.

In the Committee’s view, the vehicle test is of a high standard.

4. This improved performance has nevertheless come at a financial cost. Overall costs are some £6 million higher than if the contracted test times had been delivered. This cost been borne exclusively by the Agency’s customers.

5. A fundamental aspect of PFI deals is that risks are transferred to the party best able to manage them and the Agency considered that the signed contract achieved the full degree of risk transfer it sought. However, while the contractor is fully responsible for maintaining and operating the equipment, the Agency is responsible for the staff operating it. This has created very real difficulties in trying to determine the respective liabilities for performance failures. In effect, the contract has failed to assign risks in a transparent and appropriate basis.

6. As a result, it has proven difficult to determine liability for the failure to deliver the 18 minute test time, and so the Agency has not recovered these additional costs from the contractor. The Agency’s position has not been helped by its own poor management of the contract. It took almost two years to collect the basic management information essential for performance monitoring. In addition, the Agency consistently failed to provide the level of staffing required by the contract and has a complete lack of knowledge about how profitable this deal has been to the contractor.

7. It is important that lessons are learnt from the project’s difficulties and, in this respect, the Committee commends the Accounting Officer for his frank and open acceptance of these issues. A particular lesson from this project relates to pilot testing of new systems. In a mission critical project of this nature, the Agency should not have proceeded until it had satisfied itself that the contractor had addressed all delivery concerns.

8. The Agency is about to commission a major performance review of the contract which will address the full range of issues raised during the evidence session. In the Committee’s view, however, there has been too little done by the Agency to resolve its contractual difficulties and it has taken much longer than it should have to initiate this performance review.

9. Latest estimates now suggest that there is sufficient overall vehicle testing capacity until 2014, although some individual centres such as Belfast may reach capacity in 2011. However it is not clear what it will cost to expand capacity, or how these costs will be allocated between the Agency and the contractor.

Summary of Recommendations

1. The failure to deliver the full vehicle test and the non-compliance with EU emissions and catalytic convertor testing standards has been ongoing for too long. The Committee recommends that the Agency establishes a clear target date to resolve this issue. (see paragraph 9)

2. While performance has improved over recent years, this has come at a cost, and one which has been borne exclusively by the Agency’s customers. The Committee recommends that the Agency undertakes a specific exercise to quantify how much additional cost it has incurred as a result of failing to meet the 18 minute test time. This estimate should inform future negotiations with a view to recovering costs from the contractor. (see paragraph 15)

3. The removal of the employee bonus scheme in a commercial style operation such as vehicle testing is concerning. The Committee recommends that the Agency provides a written report detailing the measures it has in place to optimise productivity in the absence of such a scheme. (see paragraph 16)

4. The lack of clarity within this contract has made it difficult to identify the extent to which risks have been appropriately allocated between the public sector and the contractor. The Committee emphasises an earlier recommendation, from its session on PFI Pathfinder Projects in Education, that public sector bodies must ensure contracts are properly structured with enforceable penalty clauses and conditions to secure prompt payment of monies due to them. (see paragraph 20)

5. There has been a disturbing lack of staff continuity and a high number of vacancies in the contract management function and this has undermined the Agency’s ability to hold the contractor to account. The Committee recommends that, for all high risk projects, a skills needs assessment is prepared to ensure that the team is adequately resourced and has access to the experience, expertise and skills necessary. (see paragraph 24)

6. Transparency of information is a pre-requisite in ensuring that the public sector obtains a good deal in PFI contracts of this nature. It goes without saying that departments should be fully sighted on the level of profits being made on PFI deals. It is not good enough to argue issues of commercial confidentiality – if taxpayers are underpinning private sector profits, they have a right to full disclosure of the extent of such profits. The Committee recommends that the Department of Finance and Personnel should identify PFI contracts where the public sector does not currently have rights of access to relevant financial records held by contractors. In such cases, action should be taken to provide for open book accounting arrangements with private sector contractors. (see paragraph 26)

7. The Gateway process has the potential to ensure that warning signals are identified, and that necessary remedial action is taken. However the Committee is concerned about whether there are sufficient resources available across the local public sector to staff such reviews. The Committee recommends that DFP compiles a forward programme of Gateway Reviews to assess whether it has a sufficient pool of accredited Gateway Reviewers to meet the planned programme. (see paragraph 30)

8. The pilot testing did not take place in a live environment and this should have raised concerns for the Agency. The Committee refers to a previous recommendation, from its session on the Statement of Rate Levy, which it believes can be extended to this type of project. Shortcuts with pilot testing must never be taken, as the costs of subsequent flaws can be very substantial in terms of fixing an underperforming, live system. (see paragraph 32)

9. It has taken much longer than it should have to initiate the performance review of the contract. The Committee recommends that this is commissioned with immediate effect. This performance review should generate a detailed action plan with specific timescales for implementation. (see paragraph 35)

10. It is important that the performance review moves quickly to prepare a complete and accurate estimate of both the total additional capacity and expenditure required as a result of the failure to achieve the 18 minute test, and the proportion of costs which the Agency will seek to recover from the contractor. The Committee recommends that the results of this performance review are reported to it in due course. (see paragraph 39)

Introduction

1. The Public Accounts Committee met on 12 February 2009 to consider the Comptroller and Auditor General’s (C&AG’s) report “The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities".

2. The witnesses were:

Mr Stephen Peover, Accounting Officer, Department of the Environment;
Mr Brendan Magee, Chief Executive, Driver and Vehicle Agency;
Mr Stanley Duncan, Director of Road Safety, Department of the Environment;
Mr David Thomson, Treasury Officer of Accounts; and
Mr Kieran Donnelly, Deputy Comptroller and Auditor General.

3. Responsibility for conducting vehicle tests, known as MOTs, lies with the Department of the Environment’s Driver and Vehicle Agency (the Agency). By the mid-1990s, the Agency’s vehicle testing equipment was outdated and increasingly prone to breakdown. In March 2001, it signed a Private Finance Initiative (PFI) contract with a total cost of £57 million for the design, finance and build of 61 computerised test lanes at its 15 test centres.

4. Testing is carried out by the Agency’s staff at its premises, using equipment supplied and maintained by the PFI contractor. There have been difficulties with the project from its inception and the Agency has been unable to achieve the vehicle test times or customer waiting times specified in the contract. In addition the Agency is still not complying in full with EU testing requirements, even though this was an objective of the project. The Agency intends to commission a performance review of the contract in the near future.

5. In taking evidence on the C&AG’s report, the Committee focused on:

the performance of the project;
risk transfer and contract management;
lessons to be learnt; and
the way forward.

The Performance of the Project

6. The PFI contract for this project (known as MOT2) stipulated that vehicle tests must take no longer than an average of 18 minutes and customer waiting times for tests must not exceed an average of 14 days. However, some 8 years on, the contract has consistently failed to achieve these key performance indicators.

7. The Agency experienced serious problems and its customers were subject to excessive and unacceptable waiting times, particularly in the early years of the contract. At its peak, customer waiting times averaged 55 days for a test. With such unanticipated waiting times, the Agency was forced to issue certificates of temporary exemption to permit vehicles to be driven on the road without a valid test certificate.

8. The contract required bidders to meet specific EU requirements for the testing of diesel smoke emissions and catalytic convertors. Although installation of the new equipment was completed in September 2003, full testing to EU standards is still not taking place.

Recommendation 1

9. The failure to deliver the full vehicle test and the non-compliance with EU emissions and catalytic convertor testing standards has been ongoing for too long. The Committee recommends that the Agency establishes a clear target date to resolve this issue.

10. A number of factors external to the project have impinged upon vehicle testing performance. In particular, the participation of Agency staff in a Civil Service-wide strike during 2004 resulted in the cancellation of almost 100,000 test appointments. This created serious backlog problems for the Agency.

11. The Committee recognises that the Agency’s performance in terms of waiting times is now much improved. It also welcomes the high level of customer satisfaction, relatively low fees and the availability of the MOT test at times which are more convenient for customers. The provision of a wide range of booking options not previously available is also welcomed. The vehicle test is of a high standard, provides an impartial and fair evaluation of roadworthiness and contributes positively to road safety.

12. The Accounting Officer emphasised that, despite the problems faced, the Agency’s fees were lower than the testing regimes in Great Britain and Ireland. However the fact remains that fees in Northern Ireland would be even lower had the test times in the PFI contract been achieved. The Agency has incurred substantial extra costs over the life of the MOT2 contract because it had to introduce additional overtime and extended day working to address long customer waiting times. From the written evidence submitted to the Committee, it appears that the failure to achieve the 18 minute test time has cost customers almost £6 million in additional test fees.

13. Information submitted to the Committee in advance of the evidence session shows that the Agency’s overtime costs have consistently exceeded those forecast in its annual Business Plans. This is a matter of some concern. It is important that high levels of overtime do not become permanently embedded in the Agency’s culture and operations.

14. The Committee also notes that, based on advice from the Department of Finance and Personnel, the bonus scheme in operation at the time of the C&AG’s report was bought out, at a cost of £1.2 million, when the former Driver and Vehicle Testing Agency merged with the local Driver and Vehicle Licensing Agency. The vehicle testing part of the merged Agency represents the only trading fund in Northern Ireland. In a commercial style operation of this nature, it is always useful to have some sort of incentive scheme and the Committee is disappointed that the bonus scheme has been removed and that it has cost so much to do so.

Recommendation 2

15. While performance has improved over recent years, this has come at a cost, and one which has been borne exclusively by the Agency’s customers. The Committee recommends that the Agency undertakes a specific exercise to quantify how much additional cost it has incurred as a result of failing to meet the 18 minute test time. This estimate should inform future negotiations with a view to recovering costs from the contractor.

Recommendation 3

16. The removal of the employee bonus scheme in a commercial style operation such as vehicle testing is concerning. The Committee recommends that the Agency provides a written report detailing the measures it has in place to optimise productivity in the absence of such a scheme.

Risk Transfer and Contract Management

17. A fundamental aspect of PFI deals is that risks are transferred to the party best able to manage them. The Agency identified eight main risks, seven of which were allocated to the contractor. At the time, the Agency considered that the signed contract achieved the full degree of risk transfer it sought. The Accounting Officer acknowledged that this was a simplistic view that had now changed.

18. The contract is a hybrid in nature. The contractor is fully responsible for the risks associated with maintaining and operating the equipment, but the Agency is responsible for the staff operating it. This has created very real difficulties in trying to determine the respective liabilities for performance failures, i.e. whether they are due to the contractor’s equipment, its operation by Agency staff, or a combination of the two.

19. Under the terms of the contract, the Agency can impose penalties - ranging from financial deductions to contract termination - for poor performance. The Agency has threatened to invoke penalties, but has not applied them. This reflects the fact that the contract has failed to assign risks in a transparent and appropriate basis. As a result, it has proven difficult to determine liability for the failure to deliver the 18 minute test time, and so the Agency has not to date recovered these additional costs from the contractor.

Recommendation 4

20. The lack of clarity within this contract has made it difficult to identify the extent to which risks have been appropriately allocated between the public sector and the contractor. The Committee emphasises an earlier recommendation[1], from its session on PFI Pathfinder Projects in Education, that public sector bodies must ensure contracts are properly structured with enforceable penalty clauses and conditions to secure prompt payment of monies due to them.

21. While the hybrid nature of the contract has created difficulties in determining liability for poor performance, the Agency’s position has not been helped by its own poor management of the contract. For example, it took almost two years to collect the basic management information essential for performance monitoring of the contract. Such basic information would have allowed the Department to manage the contract more robustly from the beginning. It may also have helped to clarify the respective liabilities between the Agency and the contractor for failing to deliver the 18 minute test time.

22. In addition, the Agency had a contractual responsibility to supply a certain number of examiner hours per year, but has consistently failed to provide the level of staffing required. It is unacceptable that the Agency has allowed this situation to persist over the life of the project and that it is only now being addressed.

23. The Accounting Officer acknowledged that more professional contract management should have been in place, the Agency was naive in some respects and not as up to speed as the contractor. The Agency had also experienced difficulties in staffing the contract management post.

Recommendation 5

24. There has been a disturbing lack of staff continuity and a high number of vacancies in the contract management function and this has undermined the Agency’s ability to hold the contractor to account. The Committee recommends that, for all high risk projects, a skills needs assessment is prepared to ensure that the team is adequately resourced and has access to the experience, expertise and skills necessary.

25. The Department continues to remain unaware of a number of key issues relating to the contract. There is a lack of knowledge about the profit margin being earned by the private sector contractor or whether the contractor has refinanced its loan. While this reflects the fact that this was an early stage PFI contract, it is an unsatisfactory position for the Agency to find itself in.

Recommendation 6

26. Transparency of information is a pre-requisite in ensuring that the public sector obtains a good deal in PFI contracts of this nature. It goes without saying that departments should be fully sighted on the level of profits being made on PFI deals. It is not good enough to argue issues of commercial confidentiality – if taxpayers are underpinning private sector profits, they have a right to full disclosure of the extent of such profits. The Committee recommends that the Department of Finance and Personnel should identify PFI contracts where the public sector does not currently have rights of access to relevant financial records held by contractors. In such cases, action should be taken to provide for open book accounting arrangements with private sector contractors.

Lessons to be Learnt

27. This was one of the earliest PFI projects on this scale in Northern Ireland. Consequently, the Agency’s project team did not have access to the extensive good practice guidance developed more recently. Nevertheless, there were a number of warning signs which should have prompted concerns about the project’s viability and the need for an early review or remedial action by the Agency.

The initial capital cost estimates were too low. Inviting tenders on this basis may have undermined the procurement process, as ultimately there was only one viable bidder. A single bid for a major project is unlikely to achieve value for money and in any project, whether PFI or not, should flag the need for particular caution in proceeding further.
Following appointment of the preferred bidder, negotiations to conclude the contract were protracted and difficult. The bidder experienced difficulties in obtaining finance and the original software suppliers to the project withdrew. Public sector bodies need to be sensitive to risk indicators of this nature and explore the implications of such factors.
Forecasting demand was difficult. The Accounting Officer indicated that the Agency had experienced a higher level than could reasonably have been forecast and this contributed to the performance difficulties of the project. The Committee welcomes the fact that the Agency has now appointed a professional statistician to improve its future demand estimates.

28. It is important that lessons are learnt, and the Committee commends the Accounting Officer for his frank and open acceptance of these issues. The Committee is also reassured to note the comments from the Treasury Officer of Accounts that many of these general lessons have now been incorporated into subsequent PFI guidance.

29. The Treasury Officer of Accounts placed considerable emphasis on the fact that a project of this nature would now be the subject of a Gateway Review process. This is an independent review which would have teased out whether it was a sensible option to proceed along the lines suggested.

Recommendation 7

30. The Gateway process has the potential to ensure that warning signals are identified, and that necessary remedial action is taken. However the Committee is concerned about whether there are sufficient resources available across the local public sector to staff such reviews. The Committee recommends that DFP compiles a forward programme of Gateway Reviews and undertakes an assessment of whether it has a sufficient pool of accredited Gateway Reviewers to meet the planned review programme.

31. A particular lesson from this project relates to pilot testing of new systems. Although the contractor agreed to equip and operate a pilot test centre for a six-month development period, this was undertaken in conditions that did not reflect a live environment. As a result, it failed to determine whether the full test could be delivered and sustained within the 18 minute contractual requirement. In a mission critical project of this nature, the Agency should not have proceeded until it had satisfied itself that the contractor had addressed all delivery concerns.

Recommendation 8

32. The pilot testing did not take place in a live environment and this should have raised concerns for the Agency. The Committee refers to a previous recommendation[2], from its session on the Statement of Rate Levy, which it believes can be extended to this type of project. Shortcuts with pilot testing must never be taken, as the costs of subsequent flaws can be very substantial in terms of fixing an underperforming, live system.

The Way Forward

33. The Accounting Officer told the Committee that the Agency is about to commission a major performance review of the contract which will address the full range of issues discussed during the evidence session. However, it has been three years since the publication of the C&AG’s report on this topic. It is therefore disappointing that nothing seems to have moved on and that there has been so little progress since then.

34. The Accounting Officer explained that the delay in taking forward specific action reflected the fact that the Agency had been undertaking extensive sets of tests because it took some convincing that it had got the test time so badly wrong. The Agency was also trying to recover from the negative impacts of the Civil Service strike and had focused its efforts on maintaining acceptable levels of service delivery. In the Committee’s view, however, there has been too little done by the Agency to resolve its contractual difficulties with the contractor.

Recommendation 9

35. It has taken much longer than it should have to initiate the performance review of the contract. The Committee recommends that this is commissioned with immediate effect. This performance review should generate a detailed action plan with specific timescales for implementation.

36. At the time of the C&AG’s report, the Agency estimated that a 27 minute test time would result in additional expenditure of between £26.8 million and £39.8 million because of the need to increase vehicle testing capacity. The Agency has finally accepted that 27 minutes are required for the full vehicle test. However latest estimates now suggest that there is sufficient capacity in the system to meet rising demand until 2014, although some individual centres such as Belfast may reach capacity in 2011.

37. The Agency indicated that it is exploring a range of options – such as reconfiguring of test lanes, longer opening hours, changes to the re-test requirements - to help manage its capacity constraints. However it is not clear what it will cost to introduce these options or to expand capacity. Nor has it been determined how these costs will be allocated between the Agency and the contractor.

38. One area which might prove beneficial for managing capacity relates to the issue of re-tests, in particular where a vehicle has failed the test on a very minor fault. The Accounting Officer outlined some options for dealing with such failures on a more proportionate basis, without them having to go through and pay for a full re-test. In principle the Committee sees merits in such an approach and would welcome further development of these options by the Agency.

Recommendation 10

39. It is important that the performance review moves quickly to prepare a complete and accurate estimate of both the total additional capacity and expenditure required as a result of the failure to achieve the 18 minute test, and the proportion of costs which the Agency will seek to recover from the contractor. The Committee recommends that the results of this performance review are reported to it in due course.

Concluding Remarks

40. The Committee recognises that the Agency’s old vehicle testing equipment was unfit for purpose, subject to technical breakdowns and creating safety concerns for staff. In terms of replacing this equipment, the Accounting Officer indicated that the PFI contract was the only show in town and the only likely way of bringing the required level of capital investment into the system.

41. The Accounting Officer is still of the view that the project is delivering value for money. However, given the additional overtime and related costs incurred to date, and the potential future costs required to increase testing capacity, it is not evident that this is the case. It is important that a more rounded analysis is undertaken to assess whether value for money has actually been obtained from the contract.

42. This was a relatively early stage PFI project. Its failings, and the lessons to be learnt, are not new. But they are worth repeating.

Warning signals in the procurement phase were not acted on and did not prompt an early stage review.
The system was not tested in a live environment, causing significant problems in the operational phase.
There was a lack of clarity in regard to risk transfer which, combined with the Agency’s own poor contract management, have made it difficult for the Agency to enforce penalty clauses and hold the contractor to account.
And it has taken the Agency too long to address the contractual bind it finds itself in.

43. It is some 8 years into a 17 year deal, and negotiations over the contract difficulties have still not been entered into in any serious manner, never mind concluded. It is unacceptable that this contract has been allowed to reach a stage where expensive and protracted legal proceedings may be required to resolve the contractual difficulties.

44. The Agency is a relatively small scale organisation in the context of the public service and was poorly equipped in its contract management of this deal. Overall, the Committee is of the view that the parent Department’s oversight of the MOT2 project and the resources and leadership made available for taking forward such a pioneering project were not appropriate. Governance arrangements should have been more robust. It is to be hoped that the lessons from this project can feed through the system so that this Committee does not have to repeat the same conclusions and recommendations in the future.

[1] Report on the Transfer of Surplus Land in the PFI Education Pathfinder Projects
Report: 11/07/08R (Public Accounts Committee)

[2] Report on Statement of Rate Levy and Collection 2006-07
Report: 13/08/09R (Public Accounts Committee)

Minutes of Proceedings
of The Committee
Relating to the Report

Thursday, 12 February 2009
Senate Chamber, Parliament Buildings

Present: Mr Roy Beggs (Deputy Chairperson)
Mr Trevor Lunn
Ms Dawn Purvis
Mr Jim Shannon
Mr Jim Wells

In Attendance: Ms Alison Ross (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies: Mr Thomas Burns
Mr Jonathan Craig
Mr John Dallat
Mr Paul Maskey (Chairperson)
Mr Mitchel McLaughlin
Mr George Robinson

The meeting opened at 2.10pm in public session, the Deputy Chairperson in the Chair.

The Deputy Chairperson welcomed Mr Kieran Donnelly, Deputy Comptroller and Auditor General to the meeting, and Mr David Thomson, Treasury Officer of Accounts (TOA) to the meeting.

5. Evidence on the NIAO Report ‘The PFI contract for Northern Ireland’s New Vehicle Testing Facilities’.

The Committee took oral evidence on the NIAO report ‘The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities’ from Mr Stephen Peover, Accounting Officer, Department of the Environment (DOE), Mr Brendan Magee, Chief Executive, Driver and Vehicle Agency, DOE, and Mr Stanley Duncan, Director of Road Safety Division, DOE. The witnesses answered a number of questions put by the Committee.

Members requested that the witnesses should provide additional information to the Clerk on some issues raised as a result of the evidence session.

3.50pm The evidence session finished and the witnesses left the meeting.

EXTRACT

Thursday, 2 April 2009
Room 144, Parliament Buildings

Present: Mr Paul Maskey (Chairperson)
Mr Roy Beggs (Deputy Chairperson)
Mr John Dallat
Mr Mitchel McLaughlin
Mr George Robinson
Mr Jim Shannon

In Attendance: Ms Alison Ross (Assembly Clerk)
Ms Aoibhinn Treanor (Assembly Clerk)
Mrs Gillian Lewis (Assistant Assembly Clerk)
Mr John Lunny (Clerical Supervisor)
Mr Darren Weir (Clerical Officer)

Apologies: Mr Thomas Burns
Mr Trevor Lunn
Ms Dawn Purvis

The meeting opened at 2.03pm in public session.

2.37pm Mr Dallat joined the meeting.

9. Consideration of the Committee’s Draft Report on the PFI Contract for Northern Ireland’s New Vehicle Testing Facilities.

Members considered the draft report paragraph by paragraph.

The Committee considered the main body of the report.

Paragraphs 1 – 13 read and agreed.

Paragraph 14 read, amended and agreed.

Paragraph 15 read and agreed.

Paragraph 16 read, amended and agreed.

Paragraphs 17 – 19 read and agreed.

Paragraph 20 read, amended and agreed.

Paragraphs 21 – 23 read and agreed.

Paragraph 24 read, amended and agreed.

Paragraphs 25 – 29 read and agreed.

Paragraph 30 read, amended and agreed.

Paragraphs 31 and 32 read and agreed.

Paragraph 33 read, amended and agreed.

Paragraphs 34 – 39 read and agreed.

Paragraphs 40 – 42 read and agreed.

Paragraph 43 read, amended and agreed.

Paragraph 44 read and agreed

The Committee considered the Executive Summary.

Paragraphs 1 and 2 read and agreed.

Paragraph 3 read, amended and agreed.

Paragraphs 4 – 9 read and agreed.

Agreed: Members ordered the report to be printed.

Agreed: Members agreed that the Chairperson’s letters to the Accounting Officer, Department of the Environment, and Treasury Officer of Accounts (TOA), Department of Finance and Personnel, together with the responses from the Accounting Officer, Department of the Environment, and TOA will also be included in the Committee’s report.

Agreed: Members agreed the report would be embargoed until 00.01am on Thursday, 23 April 2009.

Agreed: Members agreed that the Clerk would arrange with the Press Office, a televised interview with the Chairperson and members to launch the report. The interview will take place in the Newtownards Vehicle Testing Centre, on Thursday, 23 April 2009.

10. Press release.

Members considered and agreed the press release, with amendments, in relation to the launch of the Committee Report on the PFI Contract for Northern Ireland’s New Vehicle Testing Facilities.

EXTRACT

Minutes of Evidence

12 February 2009

Members present for all or part of the proceedings:
Mr Roy Beggs (Deputy Chairperson)
Mr Trevor Lunn
Ms Dawn Purvis
Mr Jim Shannon
Mr Jim Wells

Witnesses:

Mr Stanley Duncan
Mr Brendan Magee
Mr Stephen Peover

Department of the Environment

Also in attendance:

Mr Kieran Donnelly		Deputy Comptroller and Auditor General
Mr David Thomson		Treasury Officer of Accounts

1. The Deputy Chairperson (Mr Beggs): Today’s witnesses are: Mr Stephen Peover, the permanent secretary in the Department of the Environment (DOE); Mr Brendan Magee, the chief executive of the Driver and Vehicle Agency (DVA); and Mr Stanley Duncan, the director of the road safety division in DOE and a former chief executive of the Driver and Vehicle Testing Agency (DVTA). You are all welcome to the evidence session; the Committee is pleased to have you here. As the Committee wishes to cover a lot of ground today, I ask that you ensure that your responses are to the point, without compromising the information being sought.

2. The Committee will hear evidence on the Comptroller and Auditor General’s report, ‘The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities’. Mr Peover has provided updated information to members.

3. Mr Peover, paragraph 1.9 of the report states that you considered that the private finance initiative (PFI) contract fully transferred all the main risks attached to the project to the private sector. Presumably, that is why the PFI assets do not appear on the agency’s balance sheets. However, in light of the outcomes of the contract to date, are you still of that view, and have you achieved the necessary transfer of risk that PFIs are designed to achieve?

4. Mr Stephen Peover (Department of the Environment): The original full business case for the project suggested that seven of the eight main risks associated with it were transferred to the private contractor. However, now, with the benefit of hindsight, our view is that that was a simplistic approach to the matter. It was based on the best advice that was available at the time. We received advice from consultants, and the business case was cleared with the Department of Finance and Personnel (DFP). In addition, we sought advice from the Audit Office on the accounting treatment of the assets, and so on. The general view at the time was that our appraisers had reasonable grounds for believing that they had transferred the risks that they thought they had transferred.

5. Now, having had the benefit of seeing the arrangements in operation, we have taken a different view that it is not as clear that seven of the eight main risks were transferred. Indeed, there is a shared responsibility on the Department, the agency and the contractor to provide a certain standard of service. Our view on the matter has changed.

6. The Deputy Chairperson: You acknowledge that you definitely did not transfer one risk; will you tell us what that was?

7. Mr Peover: The matter is slightly more complicated than that. The basic risk in the contract was that there was an expectation that vehicle tests would be carried out in 18 minutes. That responsibility involves a combination of factors: the equipment that the contractor installed; the facilities that were available for the testing process; and the work of the staff, who are our employees — the contract is a hybrid that covers both our staff and the contractor. The nub of the issue is: who carries what responsibility, and what is the level of responsibility? There are other issues, but that is the most important one, certainly in the context of the report.

8. The Deputy Chairperson: Do you accept that the risk that was not transferred was a very fundamental risk?

9. Mr Peover: Yes, I do accept that. All I would say in defence of our predecessors is that, at the time that they were making the business case, they had reasonable grounds for arriving at the argument about the risks that were being transferred. We would not take the same view now, but we have had 10 years’ more experience.

10. The Deputy Chairperson: Appendix 1 of the Audit Office report shows that the estimated cost of the project rose from an original estimate of some £5 million, which was the figure in the 1997 economic appraisal, to £57 million in March 2001, when the contract was signed.

11. Paragraph 1.7 states that £3·25 million a year is being paid to the contractor. How much profit is the contractor making, and has anything been done to renegotiate the contract? For instance, has there been any refinancing in light of changing interest rates, and so on?

12. Mr Peover: To explain the difference between the figures of £5 million and £57 million, I must point out that a number of different items are included in the £57 million. There is the capital element of the investment in the equipment and facilities as well as the operating cost over 18 years — the 15 years of the contract and the roll-out period. Therefore, the £57 million is the total cost of the entire operation, including the capital investment, over the period. In a sense, that is a different figure.

13. The capital costs increased from £5 million to about £14 million as the negotiations on the contract continued. That increase was due to the inclusion of additional elements: better IT facilities and cleaning, and so on. Thus, there were changes in the basic original investment, and then there was the roll-out period of the contract over its 18-year life.

14. I am not sure that I am well placed to advise the Committee on the level of profit for the contractor. I do not know whether we have figures on that. I think that the contractor would regard the matter as commercially sensitive. There is a commitment to review the contract five years after its implementation, and we have now reached that point. Therefore, we are instigating a formal performance review of the contract. We will consider how it is operating, what we are getting from it and what the contractor is getting from it, and we will see whether we can identify any areas for renegotiation. If the question is whether we have considered renegotiating the contract to date, the answer is no.

15. Mr Brendan Magee (Department of the Environment): No, we have not, but the review that we intend to undertake will examine all those aspects, including the risk transfer and financial performance. In fact, at the moment, we are looking to commission consultants.

16. Mr Peover: May I make some positive points by way of context for members. The report discloses a number of deficiencies in the original process and in its management, and we are happy to admit to those. After many problems, the system is now operating well. In our view, it delivers good value for money for the Northern Ireland customer. Since October 2005, we have charged a fee of £30·50 per car, per test. In comparison, in England, the maximum charge is £53·10, some 74% more than ours. In the South, a private contractor who uses the same equipment and methodologies as we do, charges €49, which — depending on the exchange rate — is approximately £44. Your question related to value for money. Through this contract, we are delivering value for money to the Northern Ireland customer.

17. The Deputy Chairperson: Back to my question: do you accept that you underestimated the value of the contract and that, had you been more accurate, you might have generated greater interest, which would have meant Northern Ireland drivers getting even better value for their money?

18. Will you tell us whether the PFI contract is transparent? We hear about many contracts, particularly those in the agriculture sector, whereby the supermarkets know exactly what their suppliers are handling and for what profit. Have you negotiated any transparency in the project? What degree of negotiating strength do you have? Is everything set, or is there room for negotiation in the review period?

19. Mr Peover: A detailed contract exists, and its provisions allow for all types of issues to be effected. The contract is agreed and transparent; it has been seen by legal advisers on our side and, presumably, on the contractor’s side also. There is nothing intrinsically wrong with it. Brendan’s core point is whether we are gaining as good value for money from it as we should be. We must review the performance against the contract to ensure that we are implementing its provisions appropriately and, if necessary, impose penalties on the contractor if it does not meet the standards that it can be reasonably be expected to meet. Therefore, the answer to your question is yes and no.

20. The Deputy Chairperson: It appears from paragraphs 2.21 and 2.26 of the Audit Office report that the current situation is untenable and that the Department must determine what the position is. What options are available to get the PFI contract sorted? It has been three years since the report’s publication, and yet nothing seems to have moved on. Why has there been so little progress?

21. Mr Peover: I am loath to give the Committee a history of what happened, but I need to provide a bit of context in order to explain the reasons that it has taken so long. Fundamentally, we admit that it took much longer than it should have to review the performance of the contract We hold up our hands and admit that that should have been done more quickly.

22. There are some reasons — or excuses, depending on how you want to phrase it — for that. As you will know from the report, there was a major strike in 2004. Before that, there had not been a major Civil Service strike since 1979, which had lasted a day and a half. The 2004 strike lasted several months — from December 2003 until August 2004 — and hit the Driver and Vehicle Testing Agency first. It took us until the end of 2006 to clear the resulting backlog. The report contains a number of genuine and valid criticisms of the waiting times, particularly those for customers.

23. Stanley, as former chief executive, and Brendan, as the current chief executive of the merged agency, spent much time trying to ensure that we achieved reasonable standards for our customers. The operational performance of the agency has been our main priority, and that has been very difficult. The agency is now operating well, and we can come to that issue later.

24. The PFI contract should have been negotiated more quickly, but there are reasons — such as staffing problems — that people were preoccupied. We employed four different people to try to take this work forward; however, one left because of illness, and two left for other reasons. I hope, now, that the person that we have will remain there permanently. Those are small reasons, which, at a strategic level, are not significant but which, at an operational level, have presented problems.

25. The Deputy Chairperson: I will move on and allow other members to ask questions. I ask members to limit their individual question session to 20 minutes.

26. Mr Shannon: This issue has perturbed many people, so members are glad of the opportunity to try to address some of the outstanding issues, not only as a Committee but as individual elected representatives.

27. The Department has introduced important safety initiatives for road vehicles, including initiatives on road safety and on reducing motor-tax evasion, as part of its departmental policy. However, what happens if the Department presses for initiatives for more testing but does not make provision for the extra tests to take place? That is odd, to say the least. The figures indicate that there was a 10·5% increase in the number of vehicle test applications received in the five months between May and September 2003, against a 4% increase in the previous year. That clearly shows that there is a greater demand because the Department is pressing for it. Why press for more tests if no provision has been made for the extra work that would be involved?

28. Mr Peover: That is a fair question, and it is not easy to answer. The forecasting of demand is quite difficult. We expect to carry out approximately 750,000 tests this year — 637,000 of those are full tests, and the remainder are retests. We are doing many tests. We estimated that, on average, demand rose by about 2% a year in the old days, before the new system was introduced.

29. That was our experience in the past, but we decided to increase it — double it, in fact — and estimated a 4% growth in demand. The actual growth in demand over that period was 7%. That was due to many factors, such as: the improvements that we have made in evasion enforcement; the fact that there are more cars on the road and more two-car and three-car families; and the growth in prosperity.

30. Our estimates are subject to variability. We talked about this earlier today: our experience over the past few months, as you might expect, with the financial difficulties that people are facing, is that we are getting fewer applications for tests; registrations are also down. Consequently, it is difficult to forecast the level of demand. We have had a higher level of demand than we could reasonably have expected.

31. I would say to Mr Shannon that we believe that our forecasting has been inadequate. We have employed a professional statistician to help to improve our forecasting. We are now one merged agency where there used to be two agencies. Although we were under the aegis of a single Department, in which every section knew what other sections were doing, it was not necessarily always the case that everyone was au fait with when things were going to happen. I am sure that we got timings wrong in some cases. However, we are trying to do better. We faced an unexpected level of demand, and it was that unexpected overall growth in demand that caused many of the problems rather than any specific initiatives, but the latter did contribute.

32. Mr Shannon: It was not uncommon for people to have to wait six or eight weeks for a test. I am aware of some cases in which customers had to wait up to three and a half months to get a test in their locality. I know of people from Newtownards who were asked if they could go to Belfast or Downpatrick, but that was not always possible because of the distances involved. There was a clear falling down, but are you telling us that you now have a system in place to address that?

33. Mr Peover: We have a better way of forecasting demand. Customers can go to our website and check test time slots in any of the 15 test centres. I did it yesterday, and there were dates available from yesterday right through to a week hence.

34. Mr Wells: Did you tell them who you are?

35. Mr Peover: No, I did not. I have a car that requires an MOT, and I do not tell the test centre staff who I am before I go. I have been to Larne, Newtownards and Mallusk.

36. Mr Shannon: How many cars do you own?

37. Mr Peover: I have only one car

38. Mr Magee: He does not tell them, because he wants it to pass.

39. Mr Peover: I have some experience of the process as a customer. We recognise that our customers were experiencing serious problems in the past and were subjected to excessive and unacceptable waiting times.

40. Waiting times have now been reduced to an average of 11 days for the agency as a whole, across all of the centres. Some have shorter waiting times — I think that seven days is the shortest — and some have a waiting time of 16 days, but 11 days is the average for the agency. The website has a daily updated list of the first available slots at any of the given centres. It is always possible, if someone is in urgent need, to phone the centre and ask for an urgent appointment. We will always try to facilitate that, if possible.

41. There are a variety of measures that can be taken. The agency is trying to be much more customer focused, and it has established an extended working day, from 8.00 am to 8.00 pm, six days a week. Last summer, when the agency ran into problems, it contemplated operating on Sundays as well, although there was some resistance to that. We are trying to make sure that appointments are available when people want them — which is not always during nine-to-five hours, when many people are at work.

42. Now that the agency is operating an arrangement that enables it to meet its targets — the target for waiting times is 14 days, and that has been reduced to 11 days — it is achieving good levels of customer satisfaction; typically 94% on the testing process, and 92% or so on the booking process. It is receiving good feedback, with very few complaints — a few hundred out of the 750,000 tests that are carried out every year. I will blow our trumpet for a moment: if the agency were a commercial operation with 94% to 95% levels of satisfaction from customers, determined through an independent survey, we would be very pleased with that level of performance.

43. Mr Stanley Duncan (Department of the Environment): I will add that customers now have a wide range of booking options, which were not available previously. They can book at the counter, by post, by telephone or online. That is an additional benefit.

44. Mr Peover: The option is always for customers to go to another centre, rather than that closest to them. That has to happen to allow flexibility, so if people need an urgent appointment, they can go somewhere else.

45. Mr Shannon: The staff are very helpful at the Newtownards centre, and I am sure that they are helpful everywhere else. I had occasion to take my car for MOT recently, and beforehand I had written a letter to the Minister about staffing and waiting times, because I had been receiving complaints regularly in my office. On the day that I went to the centre in Newtownards, a training session was ongoing, attended by at least 30 or 35 trainees. They piled out like bees from a nest. The manager asked me which member of staff I wanted to test my car, and I told him I wanted the one who would say “yes".

46. Mr Peover: We all want that. I should mention that my own car was failed on one occasion, and rightly so.

47. Mr Shannon: Paragraph 2.7 of the report refers to key contract figures. If targets are set that are not achieved by vastly significant margins, does that not indicate either that the targets are wrong, or that there was no way in which they could be met?

48. Mr Peover: Yes. The basic issue is the original commitment in the contract to an 18-minute test time. If that had been possible, the agency would not have got into the position that it did. The best estimate is that a full test, including the diesel smoke and catalytic converter tests, would take more like 27 minutes. It may be said that that shows a degree of inefficiency. If the testing time is 50% more than the estimate, it is a bad estimate.

49. In our defence, the time allowed for a test in Great Britain is 58 minutes, and the time allowed in the South — where the testing centres are operated by a private company, using the same equipment that we use here in Northern Ireland, but where the whole system is privatised — is 30 minutes. The basic conclusion is that we made a mistake in setting a target of 18 minutes for the test time. That was a gross underestimate of what was possible. It may be asked why there was such a gross underestimate — I may be stealing someone’s question, but I will answer it before it is asked: we made a serious strategic mistake in the testing environment before the contract opened up. There was a pilot centre where testing was carried out in what was supposed to reflect a live environment, but it did not.

50. A small number of cars were well prepared and put through repeatedly. There was not a variability of different cars that were well prepared, poorly prepared, new and old. We did not have different testers, or the live environment of a queue of cars waiting outside the testing hall to get in, with someone holding up the flow.

51. There were all sorts of reasons why the pilot test centre arrangement was a poor guide to the setting up of the contract and the operation. If it had been piloted properly, we would have known better, and we would, hopefully, have set a better target. In a sense, we hung ourselves on a hook that was impossible to get off, because an 18-minute test is difficult to achieve in the environment in which we operate.

52. Mr Shannon: Were the waiting times consistent from centre to centre? There have been indications that waiting times were higher in some centres than they were in others. Were the tests consistent throughout all of the centres?

53. Mr Peover: You are right — inevitably, the waiting times will vary. There will be a different mix of vehicles in different centres. It may be that a particular centre has prudent customers who keep their cars for a long time and need more work done to them, and another centre may have flashier customers from leafy suburbs who can afford to change their car regularly.

54. There is also human variability. No two human beings carry out a process in exactly the same way — operators will differ. Equipment may break down in operation. The layout of centres may affect waiting times. It is more difficult to move vehicles around the smaller centres, so a customer who comes for a retest and only needs to have one item checked may have to wait in the queue to get up the lane because someone else is using the hoist at the far end and they cannot get by until that customer has finished. There are lots of reasons for variability among centres.

55. We have sought to reduce the human element of variability. Every trainee who comes into the system receives four weeks of formal training, and they then have a week of shadow working with someone else. They are then supervised for a period after that. Those trainees are all skilled mechanics before they come to us, but they get a lot of training from us. We have an audit-inspection arrangement. The centre managers carry out checks, and all of our centres are accredited to ISO standard 9001:2000.

56. We think that we have done our best to eliminate the human variability in the process. Variability will still exist, because the mix of cars that come through and the type of design of the centre will affect its productivity, but we have done our best to eliminate the aspects that we can control by human effort.

57. Mr Shannon: The bonus scheme was designed to maximise productivity, but it seems that it has been removed. The Committee is concerned to know when it was removed, at what cost, and whether it was bought out. Were staff wages increased, or what system was used for the bonus scheme to be removed?

58. Mr Peover: In some ways, we are disappointed that that scheme has gone. As the report states, we agreed with the recommendation for a system that better incentivised the process. In a production-type environment, it is always useful to have some sort of incentive scheme.

59. The scheme went in April 2007 when DVTA and DVLNI were merged. The decision to merge those agencies was taken by the Secretary of State as part of the review of public administration (RPA), and it was the first product of the RPA process. The decision to merge was taken in 2006, and we merged in 2007. At that time, the Department of Finance and Personnel advised that, because we were no longer a single operation with a trading fund in a production environment, but were a bigger agency that was undertaking vehicle and driver licensing as well as testing, we could not operate a scheme of the type that we had operated.

60. We did buy it out. It cost us £1·2 million, including National Insurance, which was based on about six years’ worth of average bonuses where the average bonus was downgraded to reflect the fact that bonuses were not paid in every year and that in some years they were paid at a lower rate than others because they had not achieved the targets. That came to about £2,000 a head for the staff. That was done in consultation with DFP and negotiated with the trade union side. We would prefer to have a bonus scheme.

61. Mr Shannon: The £1·2 million was your cost. Where did that money come from?

62. Mr Peover: It came out of the trading fund as part of the overall costs of providing the service.

63. Mr Shannon: Was any money lost?

64. Mr Peover: The money came from the cash reserves that the agency had accumulated from the fees that customers had paid.

65. Mr Shannon: Do you still have reserves?

66. Mr Magee: We have some reserves, yes.

67. The Deputy Chairperson: Can the Treasury Officer of Accounts clarify why it was not possible to keep an incentivisation scheme, or a bonus scheme, to reward targets being met?

68. Mr David Thomson (Treasury Officer of Accounts): Can I come back to you on that? I want to be careful about what I say on employment issues. If the Committee were to write a note, I would be happy to come back on that.

69. Mr Shannon: My last question refers to paragraph 2.17 and 2.21 of the report, relating to significant additional overtime and extended-day working, which may follow on from the previous question. The contract began in an effort to minimise customer waiting times, and prices have risen as a result. You referred to not putting prices up, and that is a bugbear with a great many people whom I represent. Why should customers have to bear the full cost of the project’s failings, and how much of that has been recovered from the PFI contractor?

70. Mr Peover: To answer the last part of your question first, very little has been recovered. We impose penalties on the contractor where there is equipment or technical failure, and that tends to run at about £20,000 to £30,000 a year. In total, that comes to probably not much more than £170,000 to £180,000 over the life of the contract so far. However, that is for technical failures.

71. As for overtime, two issues are involved. I will go back to the one that was mentioned earlier, namely the forecast times. We are working on a business plan forecast time of 21 minutes for a standard test and 27 minutes for a full test. There is a theoretical calculation: if it can be done in 18 minutes it will cost x; if it is done in 21 minutes it will cost x plus y. Therefore, it costs more. The question is whether it could ever have been done in 18 minutes. Our view is: probably not. In that sense, yes, there is an additional cost, but not one that we can attribute wholly or entirely to the contractor. We will be looking at whether we can contribute some of it to the contractor as part of the exercise that was mentioned earlier.

72. However, the overtime reflects that. More importantly, it also reflects the fact that, for most years, we have been running under our full complement of testers — in fact, we still are. Therefore, we have not had the full number of staff in post, and, therefore, we have had to use overtime to cover vacancies, illnesses, holidays, etc.

73. I do not want to labour the issue, but I want to go back to the point that I made earlier about the difficulty of forecasting. One of our risks is that we have too many full-time permanent staff in post, and people end up not quite twiddling their thumbs, but underemployed. That is the difficulty on one side. The other risk is that we have too few staff when demand is high.

74. We have to try to balance staff numbers. One way of doing that in a situation where there is not a continuous flow people coming in is to draw on staff on a casual basis. However, we need qualified staff who are trained mechanics and who have had the training that I have described. We cannot just go out and pluck staff off the street. When there is not a continuous flow of staff, one must find some way of balancing the available human resources against the workload, and overtime is a helpful way of doing that — as is extended-day working.

75. Mr Shannon: Is the cost of that in the region of £2 million?

76. Mr Peover: Yes.

77. Mr Shannon: Is it always necessary to go through the retest process when, as often happens, the problem may be just a bald left-hand tyre or one light that is not working?

78. I wonder whether it would be more logical to have a ladder of what defects require a retest. Is it absolutely necessary for someone to pay an extra £17 for a retest when the only thing wrong might be that the rear window wiper is not of the required standard? I am talking about a flexibility that I do not believe exists currently. I certainly understand the need for a retest if the defect is more serious. We are all well aware of how the system works — some people put their car through the test to establish the defects on which it fails, but not everybody does that. The people who look after their cars are concerned about having to pay extra money for a retest.

79. I think that part of your extra costs have been recouped through the retest system. Do you have any figures to indicate the income from retests? Knowing the number of people from my constituency who use the Newtownards test centre regularly — and this is no criticism of the centre — I suggest that retests are not always necessary.

80. Mr Peover: There are about 150,000 retests at £17·50 each — I cannot quite work that out in my head. I would have that figure if I had a calculator. I will certainly get you a figure of the income from retests. That is a very fair point — we have thought about that in the context of the future of the service. When one thinks about the time of the strike, there are all sorts of options of how we could deal with a similar event in the future.

81. We have a somewhat unusual contract here, whereby part of service is contracted out and part of it is provided by our staff. Quite often, there are calls for it to be wholly privatised — the Varney Review suggested that the service should be privatised, as did the capital realisation task force. Every so often on ‘Talkback’ or ‘The Stephen Nolan Show’, there will be a furore because there is a problem, and people ask why the process is not carried out by private garages, as it is in England.

82. Full privatisation — such as the model that is used in the South, or the English model of tests performed by private garages — has always been a possibility. Over the years, Ministers have taken different views about that. That is a policy issue — whether it should be a wholly privatised service, a hybrid, or an in-house service. When we finish the review of performance, we will undertake a strategic review of the service as a whole, because it is important to study the options.

83. We have considered the possibility of waving through small failings. If, for example, there was a bald tyre on someone’s car, we considered the possibility of allowing them to go to a mechanic, getting the tyre fitted and producing the receipt at the test centre. We also considered allowing a person to go to an accredited garage, get the necessary repairs done, and come back to us. Rather than testing for that repair, the person could show evidence that the repair was carried out.

84. There are options, and we have thought about them. They are probably best set in the context of how we want the service to develop in the future, assuming that vehicle testing goes on for ever. Do we carry on as we are with the contract of the type that we have — which runs to 2018 — or do we do something different? They are very valid points, and we have considered those. We have not arrived at a specific conclusion about retests as such, but changes to the process could be made. We certainly considered changes, particularly at the time of the strike, to reduce the volume of people who come to the centres.

85. Mr Magee: The current test pass rate is 78%, so about 22% come back for retests. We are doing some work on identifying minor defects, and we need to ensure that there is consistency across all centres. We also must examine whether we are being too rigid in inviting all of the cars back for retest. Perhaps there are some cases — as long as the defect does not have a major impact on road safety — in which we could be more flexible.

86. Mr Duncan: There is an incentive in the retest fee to encourage people to maintain their vehicles. The point of the test in the first place is to have properly maintained vehicles on the road. The retest fee serves as an incentive for people to make sure that their vehicles are properly prepared in the first place.

87. The vehicle-testing service operates as trading fund, which means that all of its costs are covered by the fees that people pay. If there is any over-recovery on the retest fees, that will be reflected in lower fees for everybody else. The costs tend to balance themselves out.

88. Mr Peover: We recognise the point that some people use the tests as a diagnostic process to find out what is wrong with their car so that garages do not overcharge them for repairs before the MOT test.

89. Mr Lunn: I would like clarification on something that you said to Jim. [Inaudible due to mobile phone interference.] You said that there are currently many fewer new car registrations, but you also said that there were fewer test applications. Is that not contradictory? Surely there would be more test applications if people are holding onto their cars for longer.

90. Mr Peover: That will certainly play through in four years’ time. Fewer new cars are being bought now, so the number of cars may drop.

91. Mr Magee: We forecast that there will be about a 20% reduction in the number of first registrations on the road in Northern Ireland this year. That includes brand-new vehicles and vehicles brought in from GB. There is an element of growth in the number of cars being tested, which we forecast will be between 4% and 7%. However, interestingly, forecast growth was 11% at the start of the year, but it is now 8%, and we think that it is going to be even lower than that. There is a downward trend at the moment, although the figures will be higher than last year. [Mobile phone interference.]

92. Mr Lunn: We should all throw our mobiles on the table to find out who is trying to put me off. [Laughter.]

93. I want to return to the original award of the contract. Paragraphs 3.1 to 3.8 of the report — on pages 24 and 25 — refer to several warning signs of trouble ahead. There was a significant cost escalation, bidders withdrew, the successful bidder had difficulty in finding banking support, and there was a £5·2 million increase in IT costs. I presume that that was the responsibility of your predecessor, but why did those significant problems and delays not prompt you to undertake a formal review of the project’s viability?

94. Mr Peover: The answer is that that ought to have happened, and it would happen under current guidance. As the report acknowledges, the people responsible complied with what was regarded as good practice in the letting of contracts at that time. We started with three bidders, but one of those withdrew and another was not PFI compliant. The remaining bidder still represented good value for money against the public-sector comparator, so it seemed sensible to proceed with that option. We would now look more askance at ending up with a single tenderer.

95. The problem with the first bank was that it found our insistence on particular arrangements for compensation under the contract to be too onerous. Some time later, the successful bidder found another bank — Ulster Bank, I think — and the issue was resolved. The IT supplier withdrew, probably because there had been a gross underestimation of the cost of the facilities that would have to be provided as part of the contract.

96. We carried out reviews of the affordability of the contract, and those indicated that it represented value for money, even at the increased cost. This was an unusual and fairly early PFI contract. With the guidance that is in place and the experience that we have, we would now be more cautious in our approach.

97. Mr Magee: Things have moved on, and different arrangements are now in place. Much more detailed gateway reviews would now be undertaken in such circumstances.

98. Mr Peover: We agree with the conclusions of the Northern Ireland Audit Office Report.

99. Mr Lunn: This is the wisest Committee in the whole of Stormont, and we look backwards all of the time. I appreciate that it was an early PFI contract, but I would have thought that there would have been sufficient safeguards in place, even in those days, to prevent a situation in which only one bidder was left. [Inaudible due to mobile phone interference.]

100. The Deputy Chairperson: Can I ask everyone to please double-check that their mobile phones are switched off and not just on silent mode, as the interruption is not good for those giving evidence.

101. Mr Lunn: In the meantime, the Audit Office — and whoever else is involved — has advised that that situation is not satisfactory and that, if it reaches the stage where there are only a very small number of bidders — perhaps only one bidder — you should start over again and find out what is wrong.

102. Mr Peover: Looking back, it is hard to explain what happened. We had reached the point where the previous testing equipment was becoming unfit for purpose. It was not operating well and there were lots of technical breakdowns; in many instances, it was not even safe. That equipment required the car owner to be in the car and to drive over inspection pits, and it required our staff to work within quite hazardous arrangements. I suppose there was some incentive to get on with things and get a contract to replace that equipment with a better system. In justification, we have arrived at a better, safer, and technically more sophisticated system, which meets the customers’ needs and which they seem to be satisfied with. If there is any excuse, I think that that is perhaps one that we could offer.

103. Mr Lunn: I completely agree with you about the quality of the present system; it is the envy of the UK, and I say that from my background as an insurance man. You said that, currently, there is some notion that testing could be privatised. I think that that would be a pity, and I can tell you that the insurance industry would be very disappointed by that.

104. Mr Peover: We are taking a very critical approach because we are responding to an Audit Office report; however, I am proud of the staff who do this job — they work hard to deliver a good service to the public, and it is one for which I think we can take some credit. I mentioned privatisation because it is an issue raised by the media, the public, the Varney Report, and sometimes the garage industry, on a regular basis. There are external influences which suggest that we should keep that option open. Obviously, that is a policy matter for Ministers, not civil servants, to decide.

105. Mr Lunn: Within the various groups of people that might lobby for privatisation you mentioned Stephen Nolan; I hope that we never have to get down to that level.

106. Paragraphs 3.2 to 3.14 indicate that there were numerous failings in the project, and we have just been talking about those. Are you content with the Department’s oversight of the project and the resources and leadership that were made available to the agency in taking forward such a pioneering project? Are you satisfied with the governance arrangements that were put in place to oversee it?

107. Mr Peover: The answer has to be no; I think that we could have done better. There were some successes; the contract was due to be rolled out from September 2001-03, and the contractor did that, equipping 15 centres, on time, to deliver a system that worked. It may not have reached the performance measure that we had in mind originally; however, I think that that was an almost unattainable target. In that sense, the system did work; we had a rolling programme of closures over the two-year refurbishment period, and we managed to keep the operation going during that time. Before the Civil Service strike, all the centres were on board and we were hitting the 14-day target. At that stage, it looked as though things were operating reasonably well.

108. I do not want to be too critical of the management of the project; however, the implementation and operation of the project did work pretty well. I think that you are right; it was an oversight on our part not to have had more professional contract management in place to ensure that we were as up to speed as the contractors. That is something that we are reflecting on now. Overall, however, it was a reasonable success.

109. Mr Lunn: I will ask Mr Thomson a couple of questions, in his role as Treasury Officer of Accounts.

110. Given the catalogue of management errors that are outlined in paragraphs 3.2 to 3.14, will you assure the Committee that lessons have been learnt and have been incorporated in the updated PFI and project management guidance?

111. Mr Thomson: The PFI guidance is always being revised, and a key objective is to learn lessons. However, paragraph 3.1 of the Audit Office report states:

“we found that DVTA’s project team had complied with much of what was later to be regarded as good practice in the procurement of PFI projects."

112. In that sense, the process was not a disaster. The Committee might want to consider some issues that it has raised in previous hearings, such as how to ensure competition in procurements. Moreover, at what stage does one approach the market? Does one wait until everything is sorted before approaching the market, or should one delve into the market in order to use its expertise to help to define plans? It is not necessarily fair to criticise the organisation for liaising with the market and subsequently making changes. The Department of Finance and Personnel is slightly concerned about the suggestion in paragraph 3.6 that it should meet bidders’ costs. That is not our policy, and I hope that it will not become our policy.

113. Furthermore, the Committee discussed the issue of testing. Mr Peover has been honest about the danger of entering live implementation before having tested the system fully. All the guidance states that a system should be well tested before it goes live.

114. Mr Peover: In that context, one must recognise that it will cost a large amount of money to ask a contractor to equip a test facility fully and allow us to simulate our live environment therein. As David said, who will bear that cost? The contractor might expect us to provide funding in order to ensure that we share costs. That helps to explain why we did not conduct a proper pilot of the system before it went live. We learnt that it is worth investing in advance to ensure that a system — such as an IT system or a vehicle-testing system — is tested realistically.

115. Mr Lunn: What would happen if a similar contract was being negotiated now among three bidders, one of which withdrew, one of which was unsuitable and one of which had major problems with banking and IT? Would the contract be offered or be re-tendered? What would you advise?

116. Mr Thomson: If the contract were being negotiated now, it would be subject to the Gateway Review process. Before going through any gate in that process, one must take stock and ask an independent team to assess the situation and provide guidance. When the project started, that process had not been introduced, and, therefore, we cannot criticise the Department for not conducting that process. However, it would now be subject to the Gateway Review process.

117. That does not mean that we would not accept the preferred bidder. At that stage, if one genuinely believes that a tenderer offers good value for money and that the sole bidder meets all requirements, it is not a no-no to run with a single preferred bidder. However, the Gateway Review process should tease out whether that is a sensible option.

118. Mr Peover: The Department could have kept the contract in-house and run it as a public-sector project, which would have required us to invest between £12 million and £14 million in capital to refurbish the facilities. We did not have that money. The PFI contract was the only show in town and the only likely way to bring that level of capital investment into the system. That was, therefore, another driver for taking that route. As we have said, we would not take a route that provides poor value for money. However, if a single contractor had demonstrated value for money, we might not have been deterred anyway. We needed the work done, and we could not afford to do it ourselves. That option appeared to offer value for money, and it appeared viable. It has turned out to be a workable option.

119. Mr Lunn: Are you both satisfied that the use of a Gateway Review process would have helped at the time?

120. Mr Thomson: The Gateway Review process would certainly have helped us, because it is a very good discipline. The process of having independent people come in to take stock before the key decisions are made is a valuable tool. I am a firm supporter of the Gateway Review process.

121. Mr Peover: Gateway Reviews are like PAC hearings in that people ask hard questions. That process focuses the mind.

122. Ms Purvis: I wish to follow on from Trevor’s question on paragraphs 3.12 to 3.14. That part of the report does not present a good picture of the DVA’s management of the project, particularly paragraph 3.12, which states:

“DVTA is responsible for providing a certain number of examiner hours per year. If the stipulated number of hours is not provided, the contractors’ liability for providing sufficient capacity is reduced in direct proportion to the shortfall."

123. In the updated information that you provided to the Committee, you mentioned the staff shortages since 2003. I note that there is still a shortage of 30 examiners. How was that situation allowed to persist, and why is it being addressed only now? Surely, under the terms of the contract and the contactor’s liability, that should have been addressed straight away.

124. Mr Peover: Yes, that should have been addressed. Earlier, I said that overtime and extended day working were our responses to the staff shortfalls. We recruit from the particular market of trained mechanics. In good times, when people’s finances are buoyant, other employers can pay better wages than we can, so it is quite difficult to recruit good-quality staff. In harder times, it is easier to recruit good-quality staff. It is not a question of there being a ready pool of people waiting for us to offer them a job. Sometimes, we are in that lucky position but not often. We are in competition with other employers for staff.

125. We are bound by Civil Service processes and procedures; recruitment is a lengthy process, and it is not a terribly flexible process. It takes as long as it takes, and, as employers, we find it to be a labour-intensive process.

126. I can offer reasons or excuses for why it is difficult to have a fluid system for staffing the test centres, but we have sought to offset that through overtime. Overtime costs are gross costs; we would need less overtime if we had more full-time staff, so we would have to net off the cost of the full-time staff who would have done that work in order to see the true cost of overtime.

127. For example, if we needed 300 examiners but only had 270 and made up the difference with overtime, we would have paid 30 more full-time permanent examiners in order to do the work without overtime. The net cost of the overtime is less than the cost of employing extra staff. We have had difficulty filling the vacancies, and we have sought to meet our obligations through measures such as overtime.

128. Mr Magee: Our difficulties with recruitment have eased in the past 12 months. We went through a difficult time in the early part of 2007 and the early part of 2008, and there was a backlog in recruitment. That was mainly due to the change in the recruitment process, which was privatised to an outside contractor. The situation has improved considerably since the end of 2008 and into 2009, and we are already getting people coming through. We are confident that, although there are still vacancies, we will be able to fill those over the year.

129. Ms Purvis: Have you been using overtime to meet the stipulated number of hours in the contract?

130. Mr Peover: Yes; we have been using overtime in order to support business delivery.

131. Ms Purvis: Have you, therefore, been able to claim liability from the contractor?

132. Mr Peover: I would not like to claim that. We cannot force people to do overtime; we can ask. It is done on a voluntary basis, and it is done when we need it. We are trying to fill a number of holes, arising from a combination of illness, holidays and people on training courses, by the use of overtime. In that sense, I am not sure that I would want to put my hand on my heart and say that we have met every obligation that we have had to supply labour through the use of overtime. That is the rationale for it.

133. Ms Purvis: Paragraph 3.17 of the report states that it took almost two years to collect basic management information, which was essential in order to conduct performance monitoring for the contract information. That would have helped to determine which test centres were achieving the best times and would have established whether there were specific problems in how staff were operating the equipment, and so on. Why were those management information systems not in place from the outset of the project? Surely that basic information would have allowed the Department to manage the contract.

134. Mr Peover: You are right; we should have had better information. I have mentioned that the contract was implemented during a roll-out of the refurbishment of centres over a two-year period. For that two-year period — from 2001 to 2003 — various centres were operating under the new system, and some were operating under the old system. At any given time, around three centres were out of commission while they were being refurbished. Some centres were out of commission, some were operating under the old system, and some were operating under the new system.

135. The first real opportunity to start to collect consistent data from the operation for a comprehensive, fully functioning 15-centre MOT2-equipped service was in September 2003. I would discount the earlier period, because we would not have been getting uniform data from the system.

136. Ms Purvis: I accept that you would not have been getting uniform data from the system, given that some test centres were closed, some were operating under the old system, and some were operating under the new system. However, surely you would have been implementing new basic management information systems in the new test centres, under the new system, as you were proceeding.

137. Mr Peover: I see your point about comparisons between centres and that there will be variations, but it is only when all 15 centres are operating that we can see whether there are consistent patterns of activity: whether rural centres do better than urban centres or vice versa; or whether centres in the north of the Province do better than in the east of the Province. There are all sorts of data that one cannot get until the system is up and running properly.

138. I accept your basic point; the report’s criticism that we should have had better information systems up and running more quickly is a fair one.

139. Mr Magee: I have to agree with that. We would expect to have such information at an early stage. Unfortunately, it was not available. We have to accept the criticisms on that.

140. Ms Purvis: I refer you to paragraph 4.2 of the report. You have established, as far back as 2002, that the full test took an average of 26·5 minutes to complete and that there was little potential to reduce test times, even though the contract stated a time of 18 minutes. If you knew about the timescale of 26·5 minutes in 2002, why is it only in your update information that you decided, at the end of 2007, that 27 minutes were required for a full test? That is a gap of five years and half a minute.

141. Mr Peover: I do not want to go into a detailed chronology, but there were a number of important blips along the way. Our fundamental obligation is to deliver a service to the public. There was the Civil Service strike, which, in our case, effectively lasted for eight months. For three months of that strike, nine of our centres were closed, and there was a period before that when they were working to rule.

142. It took us until December 2006 to get that sorted and to get the testing regime back in place. Our priority was to get the system up and running and to ensure that the public were getting a reasonable level of service— not the required level but a reasonable level. We should have been alongside, managing the contract strategically and trying to establish whether we were getting value for money out of it.

143. We carried out eight separate sets of trials, I think.

144. Mr Duncan: Yes; there were eight separate sets linked to negotiations with the contractor.

145. Mr Peover: Perhaps there was some naivety on our part. We had a target test time of 18 minutes, but the testing was actually taking 27 minutes. That is a 50% difference, which is quite a big gap. Let me put it another way: if my colleagues were to say to me that they thought that the test would take 18 minutes, but it actually takes 27 minutes, I would want to be convinced that they were right. As a Department and as an agency, we took some convincing that we had got it so badly wrong or that our predecessors had got it so badly wrong.

146. We staged a number of different trials, and we tried different layouts and different locations. There was variability across centres in that some centres were performing rather better than others. We have had a mountain of data, and we have taken some time to arrive, reluctantly, at our conclusion. The Committee would not have wanted us to say that a 27-minute test time will do rightly and that we must have been wrong. We have taken some time to convince ourselves of that — perhaps too long, but we were resisting the conclusion. We wanted to ensure that we achieved a good value-for-money contract and that it was not through any fault of our own that we were operating at a lower performance level than we had originally expected.

147. Ms Purvis: Is the contractor still insisting that the 18-minute test time specified in the contract is achievable, or does the contractor now agree with the Department that it is not achievable?

148. Mr Magee: You have just touched on the point that I was going to make. The contractor did dispute some of the findings during that period. It was only when the final trial at Newtownards was completed that the contractor bought into the fact that 18 minutes is no longer achievable; he may not accept a test time of 27 minutes, but he certainly accepts that 18 minutes is no longer achievable. The question of where the liability for that rests must also be picked up in the review.

149. Ms Purvis: Where do you think that it rests?

150. Mr Magee: To be frank, the liability is probably shared. Both parties were probably naive to think that a test time of 18 minutes was achievable. We have now carried out a proper volume test, and it clearly demonstrates that, in our opinion — and we are going to stick by it — 27 minutes is the realistic time frame.

151. Mr Peover: This issue of where the liability for failure lies may end up in the courts. We want to reserve our position on exactly how much responsibility falls on us and how much falls on the contractor. The issue may end up being argued out in front of judges.

152. Ms Purvis: The purpose of today’s session is to take evidence on the PFI contract, and I accept that. However, in the PFI contract, the stipulated test time is 18 minutes. Over the past six years, the cost to DVA costumers of that 18-minute target not being achieved is £6 million, which is £1 million a year over the duration of the contract. I accept that this matter may end up in court, but we are hearing evidence today.

153. Mr Peover: We accept that. The one comfort that we can take comes from the result of the benchmarking of our test against the test in the Republic of Ireland: it uses very similar processes and the same equipment, and its test takes 30 minutes. Thus, that gives us some comfort that a 27-minute test time is a reasonable figure.

154. Ms Purvis: Figure 7 at paragraph 4.6 of the report mentions vehicle testing time, and it outlines the circumstances in which sanctions can be implemented against the contractor — for example, when the average test takes longer than 18 minutes to complete. Those sanctions range from various financial deductions to contract termination.

155. How many times have sanctions been applied in respect of any of the three issues that are addressed at figure 7? How much money has been recouped from the contractor as a result?

156. Mr Peover: As far as I am aware, we have never invoked sanctions in respect of those issues. We have only used the sanctions that I mentioned earlier where we made deductions on the availability of equipment. As it states in the report, we formally notified the contractor that we were intending to make deductions from the unitary payment. That led to the formation of the joint working group, which was intended to improve the situation and to arrive at an agreed way forward. However, the process has dragged on interminably. I am not sure whether the joint nature of it has been as evident in practice as it has been in the title of the group.

157. The simple answer to your question is that we have threatened to invoke penalties, but we have not applied them. We decided that withdrawing from the contract was not a sensible option because we have to deliver the service, and we thought that the issues were remediable through positive action and negotiation with the contractor. That is still our position. The issues may be remediable only through the courts. We have not given up on the issues, but we need to be able to take an arguable case to the courts.

158. Ms Purvis: If the service that was supposed to be delivered within the terms of the contract has not been delivered in the past eight years, surely, under the terms of the contract, you can impose penalties and measures to recoup some of the money that it has cost the agency. It seems to me that the risk has not been completely transferred to the contractor, because there has been a cost in overtime of almost £2·9 million and a cost to customers of almost £6 million. The costs seem to be continually adding up, yet you are telling me that you have not recouped any money from the contractor.

159. Mr Peover: The first point in figure 7 relates to the discussion that we had about vehicle tests taking 18 minutes and about who is liable if they take 27 minutes to complete. The first issue that has to be determined is how much responsibility lies with us and how much responsibility lies with the contractor.

160. With regard to the second point in figure 7 about test waiting times exceeding 14 days overall or 21 days at any time, we are now in the situation where our test waiting times are 11 days on average. As I said earlier, just before the strike action was taken, test waiting times were 14 days. Therefore, we were hitting that target. The issue is about who is liable for what under the terms of the contract.

161. We are not attaining 18 minutes to complete a vehicle test., and we do not think that we will ever be able to attain 18 minutes. That is a contractual issue, and we will have to argue very hard with the contractor about who is liable. The issue will have to be argued out in detail in the courts.

162. The second point in figure 7 relates to waiting times. We are achieving the target waiting times, and we will maintain those targets. We did not reach the targets in the past for variable reasons, such as strike action, availability of labour and all sorts of other things. Therefore, I am less concerned about that issue because it is being worked through and is being resolved. It should have been resolved sooner, but there were reasons that it was not resolved sooner.

163. Mr Magee: With regard to waiting times, clearly some of the issues are down to us. For instance, we must accept that the strike was not the fault of the contractor.

164. Mr Duncan: There is a fundamental difficulty with the contract in that the test time is determined by the methodology and equipment used, and by the staff, but the contractor provides the equipment, and we provide the staff. Therefore, there is a fundamental tension, which is why responsibility for the overall delivery of the service is shared.

165. I want to clarify a point about the £6 million. Customers have not paid £6 million more than the cost of the service. They have paid £6 million more than was expected if the 18 minutes had been delivered, but they have only ever paid what the service actually costs to deliver, give or take an element at the margins for extra overtime.

166. Ms Purvis: If the terms of the contract had been met, £6 million would have been saved to customers.

167. Mr Peover: I go back to the point that I made at the start: in comparison with our counterparts in Great Britain, who pay £53·10 for a test, and those in the South, who pay €49, we are still getting a good, relatively cheap, testing service.

168. Ms Purvis: May I pick up on a point that Mr Duncan made about tensions between staff and the equipment used? Are you saying that the performance of staff was at fault in trying to achieve the test times?

169. Mr Duncan: No, not at all. However, the point about incentivisation, which is made elsewhere in the report, is relevant. How far is it appropriate to incentivise staff to perform? It is a fundamental tension that is built into the contract, perhaps inappropriately.

170. Mr Peover: To be fair to our staff, they do a good job. I do not want to labour the point, but I will go back to the comparison with the South, where there is a 30-minute test time for private-sector staff using the same equipment — more or less: that suggests to me that the private sector is not getting much more productivity out of its staff that we are getting out of ours: it is probably getting less. I want to be fair to my staff, and I feel that they are doing a good job.

171. Mr Magee: Historically, we brought the test time down to 21 minutes from 23 minutes in the old system. There has been an improvement with the introduction of the PFI contract.

172. Mr Wells: It is an indication of where we are in the credit crunch, when the permanent secretary of the DOE has to drive a car that is more than four years old. One would not need to be the sharpest tool in the box to recognise a booking the name of Mr S Peover and figure out that that could be the permanent secretary. There are very few Peovers in the phone book.

173. Mr Peover: You would be surprised how few people know who I am — certainly in testing centres.

174. Mr Wells: From a constituency representative point of view, I think that the MOT system is great. I have no complaints at all about it. We are the envy of the rest of the United Kingdom and the Republic. We have a totally impartial, unbiased system that makes a very fair evaluation of what a car is worth, as well as its roadworthiness. The issue of MOTs very seldom crosses my desk as an issue of complaint. We must get the matter into perspective.

175. Mr Peover: May I use this opportunity to reiterate that? Our system is widely regarded as very good, even internationally, and one that our European counterparts regard highly and come to observe. I do not want to blow our own trumpet, but it is a well-functioning system. Stanley has pointed out some issues to me. ‘Which?’ reports over the past few years have criticised garages in other parts of the United Kingdom for not performing appropriately and repairing alleged faults that did not need to be repaired as part of the process. Customers have been unsatisfied, and secret visits from customers have shown that garages miss faults that should have been picked up as part of the testing process. The ISO accreditation for our system is BS EN ISO 9001:2000, which is recognised internationally as a good system and which does not have any incentive built into it for staff to impose unnecessary road-safety costs on customers.

176. Mr Magee: In a recent customer survey carried out in December and January, only 1% wanted the testing to be carried out by private garages.

177. Mr Wells: There would be massive opposition in the House to privatisation of the MOT system. As an owner of several cars that have been more than four years old, one regularly puts a car through the test knowing that it will fail, because that would show what is wrong with it. A retest has to be paid for, but a visit to the garage costs less. I know mechanics who do that regularly. The failure rate is a bit of a false statistic, and it is not as serious as people perceive it to be.

178. However, to go back to the report, paragraph 4.9 states that test centre managers have the discretion to leave slots unbooked for contingency purposes. I would have thought that that practice undermines attempts to improve productivity and could end up by extending the working day. Why is the ability to leave slots blank still in the system?

179. Presumably, unused slots have a knock-on effect on overtime.

180. Mr Peover: That requirement has largely gone. The rationale was to allow a bit of flexibility for urgent cases that might arise. For example, someone who needs their car might realise at the last minute that it must be tested. However, such contingencies have largely been managed out of the system.

181. Mr Duncan: In fact, the time slots that staff are using for vehicle tests are shorter than the target time. They are using 20-minute booking slots; whereas the overall average for a vehicle test is 21 minutes. There is a margin to enable managers flexibility to cope with the unexpected and take short-notice customers, who might urgently require a test. Nevertheless, it is not a fundamental feature, and its use is limited.

182. Mr Wells: Paragraph 4.10 paints a picture of a doomsday situation, in which capacity was to have been exhausted in some test centres in 2006-07 and would be exhausted in 10 to 15 others by 2010-2011. What actually happened, and what can we expect to happen, based on the 27-minute test time?

183. Mr Peover: The 2006-07 prediction was not borne out. We continually vary estimates, which depend on productivity and test-centre layout. We estimate that the MOT system — comprising 15 test centres — has the capacity to cope with rising demand until 2014, or thereabouts. Individual centres may reach capacity sooner. For instance, the Belfast test centre will probably reach its capacity in 2011.

184. Those estimates depend on demand and the capacity and design of centres — some have more lanes than others. However, although the overall system should continue to provide capacity until 2014, people may begin to experience problems with booking at their preferred centre before then. The question of how we are going to provide sufficient capacity in the system to meet customers’ needs must be addressed as part of the performance review and, indeed, the strategic review.

185. Mr Wells said that the House would be opposed to privatisation. However, if that were an option, the responsibility for it would be handed over to someone else. If we carry on with the present arrangements, we will have to manage them in conjunction with the contractors, and work out with them where the liability for any expenditure lies.

186. We could take some action by reconfiguring test lanes. The capacity of heavy-goods vehicle lanes will not be exhausted until beyond the end of the contract in 2018, and that spare capacity could be reconfigured. That is an example of how capacity can be managed, and we must ensure that we use existing resources, even with some modification, as intensively as possible in order to maximise that capacity. In addition, as part of the process, we may have to consider providing further facilities. Nevertheless, we are not at the point of exhausting capacity at any particular test centre, or in the overall system.

187. Mr Magee: In addition, we are reviewing our working hours and customer attitudes to extending our working day.

188. Mr Wells: The contractor is responsible for providing sufficient capacity to meet increasing demands for vehicle testing as they become apparent; however, in paragraph 4.14, you estimated that a move to a 27-minute booking slot would involve additional expenditure of between £26·8 million and £39·8 million for new test lanes, etc. If the contractor is responsible for ensuring sufficient capacity, should it, rather than the fee payer or the taxpayer, not be picking up the bill?

189. Mr Peover: The responsibility for forecasting demand was accepted by the then DVTA as part of the original risk analysis. Therefore, it is unreasonable to expect a contractor to take full responsibility for forecasting demand. Nevertheless, there is an argument for shared responsibility.

190. Provision for that demand — as regards the physical provision of test centres and lanes within test centres, and the human resources to work those lanes — is, as we said earlier, a shared responsibility between us and the contractor. Therefore, we must work out with the contractor our response to that expanding demand and the potential exhaustion of capacity. That will be picked up as part of the performance review and strategic review of the entire service, which will determine the best way to move it forward into the latter part of the contract and beyond.

191. Mr Wells: Is that what the contract says? Does it not say that the person who gets the PFI contract is entirely responsible for meeting demands until the end of that contract?

192. Mr Peover: Demand remains with us. The eight risks are demand; availability and performance; pricing risk; residual-value risk; operating-cost risk; design risk; construction risk; and financing the exchange-rate risks. The first of those risks lay with DVTA, and the rest with Romaha Ltd, the contractor. Therefore, we accept that we have responsibility to take account of increasing demand and work with the contractor —

193. Mr Wells: We are talking about a possible £40 million.

194. Mr Peover: That depends on reasons that we have talked about: whether minor adaptations can be made to centres so that they can use some of their resources more flexibly. As I mentioned earlier, sometimes capacity is held up at some of the smaller centres. The same applies to simple retests. Mr Shannon asked whether minor defects could be managed or taken out of the system in order to reduce the number of retests.

195. Therefore, there are many variables; some of which can be managed while others cannot. Some could be managed by making minor modifications to the centres’ physical capacity. Some can be managed by using human resources more intensively and having longer working days, perhaps even Sunday opening. All of those many options must be explored as part of the process before we launch into a huge capital build to provide bigger centres.

196. Mr Wells: How does the contract say that that cost should be apportioned? Is it 50:50, or determined through negotiation? Say, for the sake of argument, the figure is £20 million. How will you decide who pays what amount?

197. Mr Peover: By negotiation, I assume. I would need to examine the contract and come back to you. I am not sure of the details.

198. Mr Wells: If the bulk of that falls on DVA’s shoulders, will that have any impact on test fees?

199. Mr Peover: Yes.

200. Mr Wells: Clearly, it must be self-funding. Equally, will the extra cost of failure to meet the 18-minute test time be borne by the fee payer, or will the Department pick up some of the tab? If you try to attain a better test time, who will pay the bill?

201. Mr Peover: We must argue liability with the contractor in order to determine who is responsible for the failure to deliver on the 18-minute test time: is it theirs, largely ours, or is it a shared responsibility? Where does the balance of responsibility lay? That will be a difficult and contentious legal action. I would be surprised if the contractor rolled over and agreed with us. Certainly, we will not roll over and agree with them. I believe that we will end up in the courts on that issue.

202. Mr Wells: The message is that, one way or another, fees will have to rise.

203. Mr Peover: Yes, if we need to expand capacity, employ more staff and pay larger payments to the contractor. The testing side of the DVA is a trading fund and must cover its costs. All that I want to point out is that, at present, we still offer value for money. Customers get cheap tests compared with those in the rest of these islands.

204. Mr Wells: That is an interesting point. Presumably, the Republic’s cost of €49 — around £30 sterling — is also self-financing. How is it that Northern Ireland is able to offer tests for a significantly lower cost per vehicle than the Republic? We are actually quite efficient.

205. Mr Peover: I think that we are efficient. I presume that the private operators set a cost which not only covers their costs, but delivers them a profit. We are not making a profit on the time of our staff. We cover our costs.

206. Mr Duncan: We have become relatively more efficient as the contract has gone on. Our test fee was set at £25 just after the contract was implemented. It has increased by about 22% over the lifetime of the contract. In GB, by comparison, the fees charged by the private sector have increased by 35% in the same period.

207. Ms Purvis: I just did a quick calculation. There was a £6 million cost to customers over the previous six years, and if the £40 million is passed on to customers, the test fee in future would rise to £66·80, which is a substantial hike. I wish you well in your negotiations with the contractors.

208. Mr Magee: I do not accept that we would spend that much, but even if those figures were correct, the cost would be apportioned over time; they would not be recovered in the following year alone.

209. Ms Purvis: Perhaps in another six years’ time the fee will rise to £66.

210. Mr Peover: There are nine years on the contract still to run. I have not done the calculations myself.

211. The Deputy Chairperson: Some members have indicated that they wish to ask some additional questions. Earlier on, Dawn was questioning whether customers were paying more than they were required to. Your annual report reveals that, in 2007, you retained a surplus of almost £3 million, and over £2 million last year. You have, in total, £11 million in cash and in the bank. It is obvious that you are raising more money from customers than you are required to. What are your plans for that money — or have we been talking about it?

212. Mr Peover: We have to accumulate money for investment, and we have to invest in our centres. We will have to make additional provisions when we reintroduce the diesel smoke and catalytic converter tests. We cannot operate on a purely cost-recovery basis; we cannot just cover our labour costs and nothing else. We have to have resources with which to invest back into facilities.

213. This year, as part of their response to the economic crisis that is facing us all, the Executive have been keen to advance the amount of public-sector capital investment. Out of the goodness of our hearts, we have volunteered that surplus, and it has been taken back into the centre — hopefully, on the basis that it will be returned to us in due course — in order to enable additional investment in capital projects such as roads and houses and whatever else the Executive choose to adopt as priorities. It has come in useful for the Executive this year to have access to a block of money that was held as part of the consolidated fund.

214. The Deputy Chairperson: Thank you for that. I have a question about the exact nature of the contract. Do you have transparency as to how much annual profit the contractor is making?

215. Mr Peover: No.

216. Mr Magee: Hopefully, that will be picked up a part of the review. We will get a handle on that.

217. The Deputy Chairperson: Do you know whether the contractor has refinanced with lower interest rates in order to reduce his borrowing and double his profit? Do you have access to that information? That is built into a lot of modern contracts. Do you accept, in hindsight, that that is a lesson that should have been learned?

218. Mr Peover: Yes. The contract is 10 years old. I am sure that we could do much better today.

219. Mr Lunn: Dawn has explored in detail the question that I wished to ask. You mentioned a few times that, particularly with regard to liability between the contractor and the agency, you may have to end up in court. You had the opportunity to end up in court in September 2002 when you took a test case involving the Larne test centre, but you did not proceed because of a nebulous deal that was done involving the joint working group. Before I ask any more questions, is there an intention to test any of this in court? It might colour your answers if there was.

220. Mr Peover: It is likely that we will end up in court.

221. It is possible that we will arrive at a negotiated outcome, but it is certainly possible — and probably likely — that we will end up in court.

222. Mr Lunn: I have not seen the contract, but it appears to indicate that the contractor has no authority over your employees who operate the system. That could be one of the primary causes of the difference between 18 minutes and 27 minutes. You might still have a right of action against the contractor.

223. Mr Peover: I assume that the contractor would argue that the failure to meet the target was ours, not theirs, and that, if our staff worked harder, we would be OK. As Stanley said, we have carried out eight separate tests. We are satisfied that, given the human variability with any group of people, which means that some people work faster and harder than others, we have a reasonable understanding of what is possible in the use of our equipment in a live environment. We have been fully operating in that environment for five and a half years, and we have operated the test arrangements to try to look at alternative layouts under a stringent testing environment. We are confident that we have good information on which to base our judgements.

224. Mr Duncan: Part of the difficulty is that we have to work in partnership with the contractor. Under the contract, the contractor does not provide a service or a piece of equipment and walk away. It is a service in which we must work with the contractor over a period of between 15 years and 17 years. We are seeking to do that, because the test centres are open every day and the service has to be provided every day. Over a year, we have more than 750,000 customers. There is a partnership issue, which we have to maintain as far as we can while having regard to the legal and contractual issues and also the requirement to deliver a quality service at a competitive price.

225. Mr Lunn: In September 2002, you formally notified the contractor. Presumably, you took legal advice at that time, from which you backed away. Six and a half years on, you still have not carried through that implied threat. You spoke about potential appearances in court some time in the future, but time has been wasted.

226. Mr Peover: Issues such as the strike affected our ability to manage the service at any level of operational efficiency, let alone the efficiency at which we need to operate to demonstrate that the contractor was at fault. However, you are right; it has taken too long to get to this point. We can provide the Committee with a detailed chronology of what has been happening from the beginning of the contract in order to show that we have not been sitting on our hands for a large period of time and that things have been going on.

227. Mr Lunn: I will not carry on with that point, but it seems as though you have backed off from your previous position. We are very good at looking back, but perhaps the ideal way to have dealt with the situation would have been to have taken action against the contractor in September 2002 and to see whether the contractor wanted to take you to court. That would have been an interesting situation.

228. Mr Peover: Possibly. Perhaps we were too influenced by the partnership approach and should have been harder nosed. Some time ago, I said that better skills in contract management would have been helpful for us in knowing how to deal properly with the situation. It was a relatively early and new process for us.

229. The Deputy Chairperson: Today’s session has provided the opportunity to look at one of the earlier PFI contracts, which has been in operation for almost half of its contract life. We have learned of some positive factors in respect of the comparison of costs with other parts of the United Kingdom, and the Republic of Ireland. We have also learned that there are aspects could have been improved and that lessons can be learned by the Department of the Environment and other Departments about PFI contracts.

230. Clearly, there have been problems and a failure to deliver target times, which incurred substantial additional costs. There was a failure to transfer risk, long delays and a failure to identify and rectify problems. I suspect that that was caused by the nature of the transfer of the risk. Undoubtedly, the contractor thought that the risk was on the staff side, and arguments developed around that because there was no clear-cut transfer of risk. That is a lesson for the future.

231. However, we will carefully review and consider the evidence that has been presented to us today, and if the Committee has any other questions, we will forward them to you in writing. In the meantime, Mr Peover, I thank you and your colleagues for appearing before the Committee and for providing evidence. We may have a quick chat with you afterwards. Thank you.

Correspondence

Chairperson’s Letter of 12 December 2008
to Mr Stephen Peover

Public Accounts Committee
Room 371
Parliament Buildings
BELFAST
BT4 3XX

Tel: (028) 9052 1208
Fax: (028) 9052 0366
Email: Alison.Ross@niassembly.gov.uk

Date: 12 December 2008

Mr Stephen Peover
Accounting Officer
Department of the Environment
Clarence Court
10 - 18 Adelaide Street
Belfast
BT2 8GB

Dear Mr Peover

Public Accounts Committee Evidence Session – 12 February 2009

The Public Accounts Committee intends to hear evidence, on 12 February 2009, on the Comptroller and Auditor General’s Report ‘The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities’.

This report was published in March 2006 and some of the performance data and related information would require updated. In general, the latest statistics quoted in the report are for the financial years up to 2004-05 and the Committee would be grateful for updates in respect of 2005-06, 2006-07 and 2007-08. Many of the updates relate to Figures in the report, while others refer to specific paragraphs. The Committee has requested the information listed below (references are given).

1 Please provide, for the Agency as a whole, the following statistics for MOT tests for the 2005-06, 2006-07 and 2007-08 financial years:

Average Vehicle Test time (minutes);
Average Waiting Time for an appointment (calendar days);
Maximum Waiting Time for an appointment (calendar days);
Cost of MOT (car/light goods) and HGV tests;
Comparable test fees charged in Great Britain; and
Number of full tests carried out.

(Figures 1,5 and 6 and Appendix 4 refer)

2 Please provide the average waiting time (calendar days) for each individual test centre in the 2005-06, 2006-07 and 2007-08 financial years.

(Paragraph 1.9 and Appendix 4 refer)

3 Please provide details of the optimum test time achievable (based on a full statutory test with the current MOT equipment and configuration), and how this has been incorporated into the calculation of staff bonus payments.

(Paragraphs 2.15 and 3.15 refer)

4 Please provide details of the total cost of the contract incurred up to 31 March 2008, compared to the estimated cost in the original business case.

(Paragraphs 1.7 and 3.20 refer)

5 Please provide the following:

full additional salary and overtime costs incurred since the introduction of the new equipment, as a result of the inability to achieve the 18-minute test time;
actual overtime costs incurred, compared with those forecast in the PFI contract and business plans for the 2005-06, 2006-07 and 2007-08 financial years; and
actual Extended Day Working costs incurred earlier than expected (i.e. against what was forecast in the PFI contract and business plans) for the 2005-06, 2006-07 and 2007-08 financial years.

(Paragraphs 2.16 to 2.18 and 3.14 refer)

6 Please provide details of Customer Satisfaction levels for the 2005-06, 2006-07, and 2007-08 financial years

(Paragraphs 2.29 to 2.31 refer)

7 Please provide:

details of the current levels of manpower required for vehicle testing; and
details of the number currently provided and the shortfall (if any) in equivalent examiners in 2005-06, 2006-07, and 2007-08.

(Paragraphs 3.12 to 3.13 and 4.3 refer)

8 Please provide details of the total estimated additional expenditure needed, based on the current vehicle test time (and for the full test, if different).

(Figure 8 and paragraphs 4.14 to 4.18 refer)

I should therefore be grateful if you could provide this information by 15 January 2009.

Yours faithfully

Paul Maskey signature

Paul Maskey

Chairperson
Public Accounts Committee

Correspondence of 17 December 2008
from Mr Stephen Peover

Correspondence from Stephen Peover - 17 December

Correspondence of 13 January 2009
from Mr Stephen Peover

Correspondence from Stephen Peover - 13 January

Correspondence of 27 January 2009
from Mr Stephen Peover

Correspondence from Stephen Peover - 27 January

Chairperson’s Letter of 13 February 2009
to Mr Stephen Peover

Public Accounts Committee
Room 371
Parliament Buildings
BELFAST
BT4 3XX

Tel: (028) 9052 1208
Fax: (028) 9052 0366
Alison.Ross@niassembly.gov.uk

13 February 2009

Mr Stephen Peover
Accounting Officer
Department of the Environment
Clarence Court
10 - 18 Adelaide Street
Belfast
BT2 8GB

Dear Mr Peover

Re: Public Accounts Committee Evidence Session 12 February 2009

Further to the evidence session of the Public Accounts Committee yesterday, please provide the following additional information which members requested at the meeting:

1 Details of how any additional expenditure incurred through expanding capacity of test centres will be decided and apportioned between Department and Contractor; and

2 A detailed chronological breakdown of activity on the contract from inception to date.

I would appreciate your response by Monday, 2 March 2009.

Yours sincerely

Roy Beggs signature

Roy Beggs

Deputy Chairperson
Public Accounts Committee

Correspondence of 27 February 2009
from Mr Stephen Peover

Correspondence from Stephen Peover - 27 February

Annex

PFI Contract Timeline — Pre-Contract Signature

Mar-1994	Review of service delivery of vehicle testing. Confirmed status quo as best model to deliver vehicle testing but encouraged market testing of elements of the service.
Oct-1995	Consultants commissioned by DVTA conclude that major improvements to vehicle testing could only be achieved through the introduction of new, automated testing equipment.
Oct-1996	Outline Business case produced.
Oct-1996	Economic appraisal concludes that the introduction of an Integrated Test Lane concept would deliver best value for money, and highlights potential for procurement of this under the Private Finance Initiative.
Nov-1996	Ministerial approval for use of external consultants to provide financial and legal advice.
Nov-1996	DFP approves an Outline Business Case for the replacement of DVTA’s vehicle testing equipment, with an Integrated Test Lane concept, to be procured under the Private Finance Initiative.
Dec-1996	DFP approval for use of external consultants (including expenditure).
May-1997	Preliminary Interest Notice placed in the Official Journal of the European Union. Estimated value of contract stated as £5 million, based on the initial economic appraisal. This grossly underestimated the cost of items such as civil works and the transfer of risk, and did not take account of necessary items such as IT systems, replacement of the test hall doors, painting, lighting, flooring, equipment maintenance and replacement, software updating and training.
Jun-1997	Notices placed in Official Journal of the European Union and the local press inviting interested parties to register an interest in bidding for the project. Information seminar held to provide prospective bidders with background on the project.
Jul-1997	Information Memorandum issued to contractors who expressed an interest in the project. Closing date for submission of these is August 1997.
Aug-1997	Closing date.
Sep-1997	Shortlist of three applicants prepared.
Oct - Nov 1997	Invitation to Negotiate documentation issued to three shortlisted bidders. One of the shortlisted bidders withdraws.
Jan-1998	Closing date for initial bids. Bids submitted by two remaining contractors.
Feb-1998	DVTA seeks clarification on initial bids.
Mar-1998	Bid clarification (closing date extended).
Mar-1998	Best and Final Offers from two remaining bidders, and assessed by suitably qualified assessment panels. Only one of the two bids considered to be fully PFI compliant.
Apr-1998	Evaluation of bids.
Apr-1998	Project Steering Board Approval Evaluation of bids.
Apr-1998	Preferred bidder for PFI contract appointed. Net Present Value of preferred bidder’s solution estimated to be £18.8 million.
April - Dec 1998	Post -tender negotiations.
Dec-1998	Preferred bidder has to change funder, as bank which had initially agreed to finance the project was unwilling to accept DVTA’s terms for compensation in the event of the contractors defaulting on the contact.
Jan-1999	Initial full business case for the project approved by DFP. Net Present Value of project now estimated to be £24.57 million, with total cash outflow of £40.8 million. This also confirms PFI as the optimal value for money solution.
Feb-1999	NIAO ‘Off Balance Sheet’ – NIAO evaluated the Full Business Case and determined that the Service should not be accounted for on DVTA’s Balance Sheet.
March/April 1999	Changes to Financial Model to reflect additional IT costs and other changes.
Jun-1999	Contractors appoint new IT provider after initial supplier withdrew from the project.
Nov - Dec 1999	Project costs now greatly increased (Net Present Value now £29.6 million and cash outflow of £47.6 million). Negotiations on costs with IT provider. Re-evaluation of Best and Final Offers submitted by both bidders concludes that the preferred bidder would still have been appointed, even if the project cost increases had been apparent at the time of the initial evaluation.
Feb-2000	Contractors have to change IT supplier again after funder expresses reservations.
Apr-2000	Addendum to full business case for project which takes account of project cost increases is approved by DFP.
Jul-2000	DFP approval for additional expenditure on external consultants.
May - Mar 2001	Final negotiations with contractors.
Mar-2001	Financial Model agreed.
Mar-2001	DFP approval for additional expenditure on external consultants.
Mar-2001	Contract signed on 27 March. Final financial model indexed to take account of inflation in accordance with terms of contract. Total contract value in cash outflow terms now £57 million.

PFI Contract Timeline — Post Contract Signature

24-Apr-2001	OJEC Award of Contract.
Mar- Aug 2001	Pilot Centre - 6 month development.
Aug-2001	Pilot centre commissioning.
Sept 2001 - Sept 2003	Rollout to 15 test centres.
Oct-2001	Live operation at first centre – Cookstown.
Oct-Dec 2001	Problems with achieving the 18 minute test time emerged.
Jan-2002	DVTA wrote to contractors to notify them of the difficulties with test times following analysis by PFI team. Contractors denied equipment was responsible and considered DVTA staff to be responsible for lower productivity.
Feb - Mar 2002	DVTA conducted extensive trials with the MOT2 equipment (time trials at Lisburn and live time trials at Larne) which confirmed the extent of the problems with long test times, with a full test averaging 26.5 minutes.
Mar-2002	DVTA introduce 24 minute test time for MOT, excluding emissions test.
May-2002	Joint Working group (JWG) set up between DVTA and contractors to establish best test time achievable.
Jun-2002	Time trials undertaken at Lisburn indicate that full tests (including testing of smoke emission and catalytic converter) are taking between 25 and 29 minutes to complete, but confirmed that a 27 minutes test was generally the norm.
Oct-2002	Objectives of the JWG extended to specifically include the identification of issues which are preventing the achievement of an 18 minute test.
Nov-2002	Time trials conducted in Larne on the basis of new layouts, set-ups and sequences fail to show any scope for improvement on the 27 minute test.
Nov - Dec 2002	Remote monitoring of vehicle test times and report issued.
Feb - Mar 2003	Time trials conducted at Belfast and Cookstown. Cookstown R&D exercises used various booking templates and confirmed 27 minute test on 3 man lane. Belfast time trials of full MOT test had limited value with full tests frequently abandoned.
Apr-2003	JWG meet to discuss results of further time trials conducted in Belfast and Cookstown in February and March 2003. Agreement reached that a full test can be completed in 27 minutes, within a 30 minute booking slot, with the existing equipment and processes. These trials demonstrated the stages 1 and 4 of the test were consistently in excess of the contract’s performance indicators, and that times were improved when fewer than three men were working on a lane, due to waiting times being reduced.
June- July 2003	Meetings of JWG and of DVTA’s and contractors’ principals’ conclude that 6 minutes of the 27 minute test time is attributable to waiting times between test stages. Agreement is reached on 13 main items that had the potential to reduce test times. Contractors agree to arrange to have modifications developed and introduced at Larne over the next two months, so that a “final" set of time trials could be conducted.
Jul-2003	Test time for MOT set to 23 minutes.
Jul-2003	Consultants report on review of the financial model to clarify flexibilities available and inform future strategy in relation to the MOT2 contract.
Oct-2003	Time trials at Larne.
Nov-2003	JWG meet to discuss final time trials conducted at Larne. The introduction of modifications and additional equipment show some improvement in test times. Contractors consider that these indicate that a 23 minute test within a 23 minute booking slot is possible. However, analysis of results by Central Statistics and Research Branch indicates 95 per cent confidence that the overall time for cars sampled is between 22 minutes 39 seconds and 23 minutes 57 seconds. On this basis, DVTA conclude that a test time of 23 minutes could only be sustained in a 26 minute booking slot. However, the contractors are unwilling to accept that a 26 minute booking slot is required. At a subsequent meeting of DVTA and contractors’ principals’, the contractors agree to produce a report that will outline recommendations on resolving the test time problems. One conclusion of the contractors’ report was that the time taken by examiners to complete the under-body inspection at the final stage of the test had been much longer during monitored time trials than during live operations.
Mar-2004	Conditional offer from contractors to introduce a number of the modifications and improvements identified in final JWG time trials in return for them being relieved of all future liability on capacity.
May-2004	Consultants engaged to review options available under the contract post rollout.
Jun-2004	Consultants report identified 3 possible options: initiating termination; imposing deductions with a view to renegotiation; and continuing with negotiations. DVTA considered it had little option but to continue negotiations with contractors to determine the factors preventing the achievement of the 18 minute test.
Mar-2005	Headlamp beam test introduced.
01-Mar-2006	Diesel Smoke & Catalytic converter (DSCT) test introduced.
14-Mar-2006	DSCT test restricted due to excessive fume levels.
May-2006	Emission Test Development (ETD) team set up to resolve DSCT issues.
02-Jun-2006	DSCT test suspended for light vehicles due to no short term solution being identified.
Nov - Dec 2006	ETD trials conducted at Lisburn centre over 2 weeks based on preferred option 6 to consider both DSCT and test time issues. Results indicated a 25 minute test should be sustainable but recommended trialling over a longer period.
Jan-2007	Process Review of MOT2 (PRM) established to resolve DSCT and progress renegotiation of contract.
Nov - Dec 2007	Trials conducted at N’Ards centre over 1 month based on preferred option 6 concluded test time of 27 minutes.
Feb-2008	PRM report to Board on findings of N’Ards trials and options for the way forward.
Mar - Jun 2008	Internal review of contract.
Sept - Dec 2008	Development of proposals for performance review of contract.
Jan-09	Performance Review of contract commissioned.

Chairperson’s Letter of 13 February 2009
to Mr David Thomson

Public Accounts Committee
Room 371
Parliament Buildings
BELFAST
BT4 3XX

Tel: (028) 9052 1208
Fax: (028) 9052 0366
Email: Alison.Ross@niassembly.gov.uk

13 February 2009

Mr David Thomson
Treasury Officer of Accounts
Department of Finance and Personnel
Room P4, 3rd Floor
New Building
Rathgael House
Balloo Road
BANGOR
BT19 7NA

Dear David

Re: Northern Ireland Audit Office (NIAO) Report:
The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities

At its evidence session yesterday into the above report, a number of matters were identified on which the Committee agreed to seek further written information.

In this regard, I would appreciate if you would let me have your understanding of the following:

1. Why it was not possible for the Department of the Environment to retain the bonus scheme, (withdrawn in April 2007 following a merger of the DVTA and the DVLA) as a means of rewarding staff for meeting targets?

Your response by Friday 27 February 2009 would be appreciated.

Yours sincerely

Paul Maskey signature

Paul Maskey

Chairperson
Public Accounts Committee

Correspondence of 5 March 2009
from Mr David Thomson

Department of Finance and Personnel logo Treasury Officer of Accounts

David Thomson

Central Finance Group
Rathgael House
Balloo Road
BANGOR BT19 7NA

Tel No: 028 9185 8150 (x 68150)
Fax No: 028 9185 8262
email: david.thomson@dfpni.gov.uk and jill.downie@dfpni.gov.uk

Paul Maskey
Chairperson
Public Accounts Committee
Parliament Buildings
Room 371
Stormont Estate
BELFAST BT4 3XX 5 March 2009

Dear Paul

NIAO Report in The PFI Contract for Vehicle Testing

Thank you for your letter of 13 February.

At the hearing, the issue of the bonus scheme was raised and Stephen Peover stated that he was disappointed that the scheme had gone and that he would have preferred to have one operating as an incentive measure. I was asked why it was not possible to keep it and I offered to provide the Committee with a note on the issue.

DVTA had operated a Group Incentive Bonus Scheme since the formation of the Agency in 1994. The scheme was provided for in the Agency’s Framework Document, which stated “Subject to the agreement of the Department and the Department of Finance and Personnel, the Agency may establish an efficiency related bonus scheme for staff". Under the scheme, a bonus was payable to all eligible staff when the Agency’s key financial performance target was exceeded and a number of other targets met.

As regards general policy, it was, and still is, pay policy that departments and agencies should not plough efficiency savings back into the organisation to fund the remuneration of staff outside of the standard NICS Bonus Schemes. Any savings generated through efficiency gains should rather be directed at the improvement of frontline services and this is a key aspect of the Government’s reform agenda. The remuneration of staff is dealt with separately through the pay remit process.

When the merger between DVTA and DVLNI was being considered, DFP, following an approach from DOE, was concerned that it could be considered unfair and inequitable to retain the scheme for the part of the organisation that was formerly DVTA, as this could create unacceptable equal pay vulnerabilities.

A number of options were then put forward for consideration. These included the option of retaining the scheme but extending the benefits to former DVLNI staff. However this raised issues about fairness, since former DVLNI staff would be benefiting from a bonus they didn’t earn (ie, they made no contribution to the efficiencies on which it was based) or contribute to (by way of funding). It was considered that this could be subject to challenge by existing DVTA staff who would see their bonus payments reduced by around 50%.

Having reviewed each of the options and following consultation with Central Personnel Group and the Departmental Solicitor’s Office, it was decided that the best option was to terminate the scheme. However this required DOE to ‘buy out’ future entitlement to the scheme, because the Agency had an obligation to pay these bonuses as they were an integral part of the pay and conditions of staff employed in DVTA staff. Unilaterally stopping the bonus was not considered to be a feasible option. Subsequently, a DOE paper was submitted to the Agency management board which agreed the way forward.

Yours sincerely

D Thomson Signature

David Thomson

Appendix 4

List of Witnesses Who Gave Oral Evidence to The Committee

List of Witnesses Who
Gave Oral Evidence to The Committee

1. Mr Stephen Peover, Accounting Officer, Department of the Environment.

2. Mr Brendan Magee, Chief Executive, Driver and Vehicle Agency.

3. Mr Stanley Duncan, Director of Road Safety, Department of the Environment.

4. Mr Kieran Donnelly, Deputy Comptroller and Auditor General, Northern Ireland Audit Office.

5. Mr David Thomson, Treasury Officer of Accounts, Department of Finance and Personnel.

Session 2008/2009

Tenth Report

PUBLIC ACCOUNTS COMMITTEE

Report onThe PFI Contract forNorthern Ireland’sNew Vehicle Testing Facilities

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 2 April 2009 Report: 35/08/09R (Public Accounts Committee)

Membership and Powers

Table of Contents

Report

Appendix 1:

Appendix 2:

Appendix 3:

Appendix 4:

List of Abbreviations used in the Report

Executive Summary

Summary of Recommendations

Introduction

The Performance of the Project

Recommendation 1

Recommendation 2

Recommendation 3

Risk Transfer and Contract Management

Recommendation 4

Recommendation 5

Recommendation 6

Lessons to be Learnt

Recommendation 7

Recommendation 8

The Way Forward

Recommendation 9

Recommendation 10

Concluding Remarks

Minutes of Proceedings of The Committee Relating to the Report

Thursday, 12 February 2009 Senate Chamber, Parliament Buildings

Thursday, 2 April 2009 Room 144, Parliament Buildings

Minutes of Evidence

12 February 2009

Correspondence

Chairperson’s Letter of 12 December 2008to Mr Stephen Peover

Public Accounts Committee Evidence Session – 12 February 2009

Correspondence of 17 December 2008 from Mr Stephen Peover

Correspondence of 13 January 2009 from Mr Stephen Peover

Correspondence of 27 January 2009 from Mr Stephen Peover

Chairperson’s Letter of 13 February 2009to Mr Stephen Peover

Re: Public Accounts Committee Evidence Session 12 February 2009

Correspondence of 27 February 2009 from Mr Stephen Peover

Chairperson’s Letter of 13 February 2009to Mr David Thomson

Re: Northern Ireland Audit Office (NIAO) Report:The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities

Correspondence of 5 March 2009 from Mr David Thomson

NIAO Report in The PFI Contract for Vehicle Testing

List of Witnesses Who Gave Oral Evidence to The Committee

List of Witnesses WhoGave Oral Evidence to The Committee

Report on
The PFI Contract for
Northern Ireland’s
New Vehicle Testing Facilities

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 2 April 2009
Report: 35/08/09R (Public Accounts Committee)

List of Abbreviations used
in the Report

Minutes of Proceedings
of The Committee
Relating to the Report

Thursday, 12 February 2009
Senate Chamber, Parliament Buildings

Thursday, 2 April 2009
Room 144, Parliament Buildings

Chairperson’s Letter of 12 December 2008
to Mr Stephen Peover

Correspondence of 17 December 2008
from Mr Stephen Peover

Correspondence of 13 January 2009
from Mr Stephen Peover

Correspondence of 27 January 2009
from Mr Stephen Peover

Chairperson’s Letter of 13 February 2009
to Mr Stephen Peover

Correspondence of 27 February 2009
from Mr Stephen Peover

Chairperson’s Letter of 13 February 2009
to Mr David Thomson

Re: Northern Ireland Audit Office (NIAO) Report:
The PFI Contract for Northern Ireland’s New Vehicle Testing Facilities

Correspondence of 5 March 2009
from Mr David Thomson

List of Witnesses Who
Gave Oral Evidence to The Committee