The Committee has noted a variance of £6,753,000 between expenditure and grant in Subhead A3.

Although the Appropriation Account includes an explanation of the variation, the Committee is seeking a fuller and more detailed explanation.

Also the Appropriation Account notes a loss of £2,161,000 in respect of remedial works carried out on a factory constructed by IDB. Again the Committee would like the detail of this loss and how it arose.

A reply by 6 April would be appreciated.

When we receive your reply the Committee will decide if it wants to take further evidence.

I am copying this letter to the Treasury Officer of Accounts.

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I am replying to your letter dated 22 March 2001 regarding two points raised by PAC in connection with our Land and Buildings activities during 1999/2000.

Firstly, with regard to the variance of £6,753,000 between expenditure and grant in Subhead A3 approximately £4m of the total variance arose because of a decision by a potential inward investor not to proceed with a foundry project on the ex-Mackies site in West Belfast. IDB was willing, subject to a positive appraisal of the Company's business case, to negotiate the purchase of the site from the Receiver and had budgeted for this. In turn IDB would grant a lease to the company to set up a new foundry operation. Subsequently however the company decided not to proceed with their plans to locate in N Ireland.

The remainder of the variance arose from slippage, which was outside our control, in our land acquisition and estate development works programme. Notably, we had protracted negotiations with the main landowner in respect of land acquisition in the Magherafelt area and a High Court challenge and subsequent judgement regarding our proposed vesting of land at Banbridge for a new industrial estate further delayed work which had been planned for 1999/2000.

The normal in-year monitoring process whereby we inform DETI HQ and through them DFP of our ongoing financial position identified these potential underspends and relevant resources were re-allocated to meet substantial pressures on our ID Grant provision. Government accounting rules do not allow us to take a negative supplementary estimate (i.e. to reduce our provision below the original main estimate figure). Consequently, although we informed our DETI and DFP colleagues that our likely outturn expenditure on Land and Buildings would be in the region of £15.5m it was not possible for us to reduce the figure of £22.4m, which appeared in the Spring Supplementary estimates and on which the Appropriation Accounts are based, to £15.5m. In reality however we were working to a control total of £15.5m for Land and Buildings with a corresponding increase in the provision of Assistance to Industry grants and transfers at subhead C5.

I think it is important that the Committee is aware that the in-year monitoring system identifies pressures and easements and that working with our colleagues in DETI HQ and DFP we maximised our use of resources even though this may not be wholly apparent from reading the relevant Appropriation Accounts.

Secondly, the loss of £2.161m arose from a project for the design and construction in 1990 and 1991 of a 35,000 sq metre factory at Campsie Industrial Estate, Londonderry to be occupied by Fruit of the Loom Manufacturing Company Limited (FOTL) as a plant for spinning cotton yarn. The building was constructed by IDB under the terms of a Development Agreement between IDB and the company. The total cost of the factory was £14.6m including professional fees.

A team of consultants (the Design Team) was employed to design the building, and supervise its construction. Work on the design of the building began early in 1990. Construction work commenced on site at the beginning of May 1990 and was completed approximately one year later. In October 1991, with the onset of colder winter weather, a serious condensation problem manifested itself inside the building , with water dropping from the inner skin of the roof cladding onto the production area below. Investigations revealed that the principal cause of the problem was the Design Team's failure to make adequate provision in the design of the building for the internal controlled levels of temperature and humidity which were required for the process of cotton yarn spinning. In the course of the ensuing investigation other problems came to light , most of which were attributable to errors in the design of the building, but some of which were construction defects.

In consequence, extensive remedial works, mainly to the factory roof had to be carried out in 1995 and 1996 at a total cost to IDB of £3,125,163.98 together with professional fees at £387,080.09. IDB carried out the works on foot of Counsel's legal opinion that IDB would be held liable to FOTL for the cost of remedying the defects on the basis that IDB was in breach of the Development Agreement.

IDB sought to recover the remedial works expenditure as damages for breach of contract from the Design Team and contractors involved. The litigation was lengthy and complex because of the technical issues involved. The various defendants maintained a vigorous denial of liability and despite efforts by the Judge at pre-trial reviews, no real attempt was made by the defendants to settle the case either singularly or jointly before the case came to the High Court on 4 May 1999. Serious settlement negotiations only began after the case commenced and following the opening address by IDB's Counsel. After 3 days of intensive negotiations, settlement agreements were reached with the individual defendants. The total amount recovered under the settlement agreements was £1,350, 756.20.

In reaching these agreements the choice facing IDB was between taking the case through to judgement and enforcement or accepting settlements which represented the maximum amount which could be extracted from the individual parties in the light of their professional indemnity insurance cover. To have rejected the settlement offers would have meant IDB incurring further legal costs. In the case of the latter this would effectively have reduced the amount available for settlement at a later stage in the trial because of the 'cost inclusive' nature of the professional indemnity cover. Or if the litigation had been pursued to a conclusion and a judgement was subsequently obtained and enforced, it would almost certainly have put the defendants out of business with no guarantee of any greater sum by way of recovery than that obtained by negotiation. In the circumstances IDB's Counsel strongly recommended acceptance of the final settlement figures.

The loss of £2,161,487.87 referred to in the accounts is the difference between the cost of remedial works (£3,512,244.07) and the total amount recovered under the terms of the settlement with the defendants (£1,350,756.20).

I trust that this additional information is helpful to the Committee.

I am copying this letter to the Treasury Officer of Accounts.

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I refer to your letter of 3 April 2001 responding to points this Committee has raised on IDB's Land and Buildings activities including the substantial loss of £2,161,000 in respect of remedial works carried out on the Fruit of the Loom factory. The Committee has noted that the amount recovered from the Design Team and contractors was the maximum that could be extracted from individual parties in the light of their professional indemnity insurance cover.

The Committee expects lessons to be learned from this, in particular the need to ensure that Design Consultants, Architects and Contractors have the appropriate level of insurance cover in place commensurate with the value and complexity of the building to be designed. I understand that the Department of Finance and Personnel has already drawn this point to the attention of Principal Finance Officers.

I am copying this letter to the Treasury Officer of Accounts.

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The Committee has noted a variance of £6,007,000 between expenditure and grant in Subhead K4.

Although the Appropriation Account includes an explanation of the variation, the Committee is seeking a fuller and more detailed explanation.

A reply by 6 April would be appreciated.

When we receive your reply the Committee will decide if it wants to take further evidence.

I am copying this letter to the Treasury Officer of Accounts.

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Thank you for your letter of 22 March seeking, on behalf of the Committee, a fuller and more detailed explanation of the variation of £6,007,000 between expenditure and grant in Subhead K4.

This variation was mainly a consequence of the shortfall in respect of anticipated further clawback payable to the Department as a result of the (non-arm's length) disposals by NIE, in 1997/98, of part of its Danesfort headquarters complex and its shareholding in the former NIE Retail Ltd which operated the Shopelectric retail chain of 34 shops.

The clawback entitlement arises from a Deed of Debenture drawn up between the Department of Economic Development and NIE, as part of the privatisation arrangements. This provides that certain disposals by NIE of the property transferred to it under those arrangements, in the 10 year period to 31 March 2003, may be subject to clawback payable in favour of the Department. The Department is entitled to receive 50% of any gain accruing from a disposal based on its value in 1993 (adjusted for inflation to the disposal date) subject to the consideration exceeding £250,000 (also adjusted for inflation at the disposal date).

NIE has calculated that clawback of £250,000 is payable on the disposal of the Danesfort complex, and made a clawback payment "on account", of £260,246 ie £250,000 plus £10,246 interest to the payment date, as permitted under the terms of the Debenture, on 27 March 1998. The company maintains that this is the total clawback payable on the disposals in the period. On the other hand, the Department, on the basis of advice provided by the Valuation and Lands Agency, has concluded that clawback totalling £6,341,838 is payable by the company ie £5,905,164 (including £455,485 interest to the payment date) on the Danesfort disposal, and a total of £436,674 (including £37,680 interest to the payment date) on the disposals of 5 of the retail shops.

Because of the disagreement over the amount of clawback payable on the disposals, no further payment was received by the Department in 1999-00, and this is the main reason for the variation of £6,007,000 in Subhead K4.

Despite discussions and exchanges of correspondence between the parties, it has proved impossible to narrow the substantial gap between the respective clawback calculations, and the Department has therefore triggered the dispute mechanism also contained in the Debenture. As a result, the two areas of dispute, namely (a) the valuations on which the clawback calculations are based and (b) an aspect of the methodology for the calculation of the interest payments, are in the process of being referred to separate independent 'Experts' for resolution, as also provided for in the Debenture.

Appropriate provision has also been included in the 2001-02 main estimates in respect of the anticipated clawback payment.

I should add that, under the terms of the Debenture, interest is also payable on any additional clawback payable as a result of the resolution of the disputes from the relevant disposal date(s) to the due date for payment of the agreed amount.

I hope that this is helpful. I will, of course, be happy to provide any further information the Committee requires at this stage.

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I refer to your letter of 29 March 2001 which provided the Committee with a detailed explanation of a £6 million variance between expenditure and grant in Subhead K4.

The Committee notes that the variation was mainly a consequence of the shortfall in respect of anticipated further clawback payable to the Department as a result of disposals by NIE, in 1997-98, of part of its Danesfort Headquarters complex and its shareholding in the former NIE Retail Limited which operated the Shopelectric retail chain of 34 shops.

The Committee attaches great importance to Departments and public bodies ensuring that they have effective arrangements in circumstances where clawback is appropriate and that they vigorously pursue any sums due. The Committee notes the extent of the disagreement between your Department and NIE on the amount of clawback payable and would like a further report from you when the independent arbitration process has been completed.

You may also wish to note that the Committee has asked the C&AG to review all other aspects of the follow-up to his 1994 Report on Privatisation (HC667), including those relating to the effective regulation of the industry and, if appropriate, to produce a report.

I am copying this letter to the Treasury Officer of Accounts and the Accounting Officer in OFREG.

Please find attached for your information correspondence between the Committee and Mr Bruce Robinson, Accounting Officer of the Department of Enterprise Trade and Investment concerning the issue of clawback arrangements with NIE.

Your 20 June letter reported on the Public Accounts Committee's comments on the present state of play in the disagreement between the Department and NIE on the amount of clawback payable on the NIE disposals of part of its Danesford Headquarters complex and shareholding in the former NIE Retail Limited. I will arrange for a further report to the Committee, as requested, when the independent expert has reported his conclusions.

I also note that the Committee has asked the C&AG to review all aspects of the follow-up to his 1994 report on privatisation and can confirm that he will have the Department's full co-operation in this work.

I am copying this response to the Treasury Officer of Accounts and the Accounting Officer in OFREG.

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The Public Accounts Committee has asked me to invite you to comment on the actions taken by your Department in response to the Comptroller and Auditor General's Report on Failure to follow Proper Purchasing Procedures (Northern Ireland Appropriation Accounts 1999-2000). The Committee would like you to address specifically the conclusions arising from the matters noted in the Report.

Your responses should include details of the action plans put in place to implement change and any other relevant information. The Committee would be particularly interested in answers to the following questions:

1. Paragraph 2 indicates that for a number of years the Tourist Board had not been complying with the terms and conditions of its grant as set out in the Financial Memorandum with your Department. What steps have you taken to ensure that terms and conditions of funding will be properly adhered to in future?

2. Paragraph 6 indicates that, in the case of the 1999-2000 Foreign Guide contract, a £64,000 bid from W&G Baird, was accepted although it was £12,350 higher than the lowest bid which was £51,650. In how many other cases, since 1994-95 has work been awarded to W&G Baird in circumstances where there were lower bids. In each case, please state the amount of the W&G Baird bid and all lower bids together with the reasons for rejecting the lower bids.

3. Please confirm in how many cases since 1994-95 work was awarded to W&G Baird in circumstances where they submitted the lowest bid.

4. Paragraph 10 notes that the Government Procurement Agency (GPA) was used on a range of procurement exercises but not printing contracts. Please provide details of other contacts where GPA was not used? Why were printing contracts an exception?

5. Paragraph 12 makes it clear that W&G Baird had a business relationship with NITB prior to the appointment of Mr Bailie to the Board in 1994. Do you accept that an important lesson from this is that it is undesirable to make an appointment to the Board of a public body in circumstances where there is the potential for a serious conflict of interest because the prospective appointee's company is carrying out substantial business with the public body?

Following receipt of your answers to the above questions, the Committee will decide whether it would be necessary to hold an Evidence Session on this subject.

I should be grateful for a reply by 4 May 2001. A copy of this letter goes to the Treasury Officer of Accounts.

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You wrote to me on 28 March, on behalf of the Public Accounts Committee, inviting me to comment on the actions taken by my Department in response to the Comptroller and Auditor General's report on the Northern Ireland Tourist Board's failure to follow proper purchasing procedures.

The Committee asked five specific questions which I have answered in the following paragraphs using the same numbering as used in your letter.

1. In February 2000, at the request of NITB, the Department's Internal Audit Service investigated the procedures for awarding print contracts. This resulted in a number of recommendations, as acknowledged in the C&AG's report, to ensure that NITB followed proper procedures and adopted best practice. These included:

• the signing, in July 2000, of a Service Level Agreement with the Government Purchasing Agency (GPA) which will ensure that GPA's expertise will be utilised in NITB's procurement processes;
• the revision of the purchasing and procurement section of the NITB financial procedures manual to reflect best practice; and
• the assignment to the NITB finance manager of a co-ordination and management role in relation to tendering and contract procedures.

The Department's Internal Audit Service will also continue to review NITB internal procedures.

2. Mr Roy Bailie was appointed to the Board of NITB in 1994. As recorded in the C&AG report, W&G Baird Limited were major suppliers of print services to NITB prior to his appointment. Prior to 1994/95, print contracts had been placed by NITB with a range of Northern Ireland based printers without formal tendering.

From an examination of NITB files it would appear that the 1994/95 and 1995/96 contracts to print the Main Guide and a contract to reprint a Golf Course Guide was awarded to W&G Baird Limited without formal tendering procedures being applied (Table 1).

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Details of printing work undertaken by W&G Baird in relation to the Holiday Breakaway Brochure in 1994/95 and 1995/96 are set out in Tables 2 and 3 below:

Files for this brochure have been archived after being held for 5 years, however, remaining documentation would indicate that other competitive quotes were sought and received.

Files for this brochure have been archived after being held for 5 years, however documentation on the Holiday Breakaways 1997, working file indicates that a quote for £78,000 was received from Graham & Heslip Ltd. However, following difficulties experienced during the production of the 1995/96 winter brochure they were not awarded the contract.

From 1996/97 the award of the print contract for the Main English Language and Foreign Language Guides followed a competitive tendering process involving the submission of a minimum of three written bids. NITB records indicate that on the following occasions contracts were awarded to W&G Baird Limited. These are detailed in Tables 4 to 11.

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Following assessment of the tenders for 1997 W&G Baird Ltd was awarded the contract. The main rationale being:

• NITB had concerns over the quality of work being produced by the lowest tender, Graham & Heslip Ltd.
• the initial cost saving of £5,000 gained by awarding to Graham & Heslip Ltd was considered to be outweighed by the additional staff resources required to manage this supplier.

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Included within the "reprint run" were additional brochures required for the 1997 Domestic Tourism Marketing Initiative (part of Tourism Brand Ireland) campaign at an additional cost of £50,000.

Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

• the initial cost saving of £5,000 gained by awarding to Universities Press was considered to be outweighed by the additional staff resources required to check films, etc.
• at the time of awarding the contract NITB in general and the Publications Department in particular were facing pressures on personnel and resources. It was therefore considered that the priority was to ensure that the publications were produced on time for the main 1998 tourist season.

Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

• the Universities Press tender indicated a four-week period for the supply of paper; it was considered that this would have unreasonably delayed the publication. Final price including corrections was £6,850.

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Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

• Waddies, the lowest cost submission, indicated that production film was required to be provided by NITB by 4th December and NITB was not in a position to satisfy this request.

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Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

• The lowest bid did not reflect the cost of retrieval of data from W&G Baird Ltd, the existing supplier.

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Following assessment of the tenders W&G Baird Ltd was awarded the contract as:

• Universities Press intended to sub-contract the thread-sewn process, it was considered that this would delay the publication and impact on the ability of Universities Press to quality control the process.

3. Work was awarded to W&G Baird Limited in the following cases where the company submitted the lowest tender.

4. NITB formally signed a Service Level Agreement with GPA in July 2000. Prior to this date NITB used GPA on an ad hoc basis where NITB did not have appropriate in house expertise, product or market knowledge. Contracts tendered by NITB without using the services of GPA have included consultancy services in relation to Welcome Host, research, financial and marketing appraisals.

5. The practice here is governed by Her Majesty's Treasury Office guidelines. Where there is a potential for a conflict of interest arising where a board member of a public body is engaged in carrying out business with the public body, the body should ensure that procedures and controls are in place to protect such members from situations where there could be actual or perceived conflicts. While steps were taken to ensure that there was no actual conflict of interest in NITB, following the Department's Internal Audit Service Review, the procedures were recognised as inadequate to forestall the possibility of perceived conflict of interest. The resultant actions should ensure that this possible perception has been adequately addressed. Board members who have a private sector background do, of course, bring valuable business skills to bear in relation to the running of public bodies. There would be a loss to the public sector if people with suitable private sector experience were debarred from appointment to the boards of non departmental public bodies on the basis of a possible business relationship.

I trust that the Committee finds this response helpful.

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I refer to your letter of 10 May 2001 on the failure of the Northern Ireland Tourist Board to follow proper purchasing procedures. The Committee considers your letter disturbing because it reveals the extent to which substantial print contracts were awarded to W&G Baird in circumstances where there was either no tendering at all or where there were lower bids. In the Committee's view, the reasons cited for rejecting these lower bids are not convincing.

However, the Committee does acknowledge that your Department has taken a range of measures to ensure proper procedures are followed in the future. The Committee has asked for a further report from you in 12 months time on all print contracts awarded since April 2000. This report should disclose full details of all bids received and the basis on which contracts were awarded.

You have not accepted the proposition that an important lesson from this case is that it is undesirable to make an appointment to the Board of a public body in circumstances where there is potential for a serious conflict of interest because the prospective appointee's company is carrying out substantial business with the public body. You argue that there would be a loss to the public sector if people with suitable private sector experience were debarred from appointment to the Boards of non-departmental public bodies on the basis of a possible business relationship. I should point out that the Committee fully recognises that Board members who have a private sector background can bring valuable business skills to bear in the running of public bodies. It also recognises that experienced people in the hotel and catering industry should not be precluded from appointment to the Board of NITB because their business receives NITB grants. However, the Committee makes a clear distinction between this type of situation and the undesirability of making a Board appointment in circumstances where the appointee's company is carrying out substantial commercial business with the public body.

In such circumstances it would be extremely difficult for any public body, even a well-managed one with sound procedures, to deal effectively with the perception that potential suppliers are not treated equitably. In the Committee's view, guidelines on public appointments should be looked at again in the light of the Tourist Board case. In so far as the guidelines which apply in Northern Ireland broadly mirror GB guidelines, this would seem to be a point of national significance.

I am copying this letter to the Treasury Officer of Accounts.

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I am writing to confirm receipt of your 18 June letter setting out the Public Accounts Committee's views on the weaknesses in the Northern Ireland Tourist Board's purchasing procedures.

I note the Committee's acknowledgement of the measures taken by the Department to ensure proper procedures are followed in future and their request for a further report in 12 months on all print contracts awarded by the Board since April 2000. I am copying this letter to the Chief Executive to arrange for this information to be available to enable the Department to provide the necessary information to the Committee in due course.

I have also noted the specific comments and concerns of the Committee on the question of appointments to the Board of public bodies where there is a potential for serious conflict of interest. As I have made clear before, we have sought to follow closely the Code of Practice for Board Members and in this case, as in others, have taken steps to avoid the potential for conflict of interest situations. Nonetheless, I accept that public perception is another consideration.

Nonetheless I note your reference to the national guidelines and the Treasury Officer of Accounts and the Department will of course comply with any further guidance that he or the Treasury may provide.

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The Public Accounts Committee has asked me to invite you to comment on the actions taken by your Department in response to the Comptroller and Auditor General's Report on Expenditure on Corporate Identity and the Promotion of the New Deal and Jobcentres (Northern Ireland Appropriation Accounts 1999-2000). The Committee would like you to address specifically the lessons arising from this case.

Your responses should include details of the action plans put in place to implement change and any other relevant information. The Committee would be particularly interested in answers to the following questions:

1. Paragraph 4 refers to the incomplete and inaccurate nature of basic tendering documentation. What new procedures and guidance has been issued to your staff on how contracts should be awarded? Did the staff who handled the GCAS contract ever receive any formal training in procurement procedures?

2. Paragraph 1 indicates that the total value of business awarded to GCAS, between 1996-97 and 1999-2000, without going through a proper tendering procedure, was £900,000. Have any further payments been made to GCAS in 2000-2001 and, if so, are proper procedures now being applied?

3. Paragraph 8 notes that the Agency has taken action to introduce robust new procedures that involve the Government Purchasing Agency (GPA) from the outset of any purchasing exercise. Why was GPA not used previously?

4. In view of the C&AG's findings what checks have you carried out to satisfy yourself that purchasing procedures are being complied with on other contracts? Can you give the Committee a firm assurance that this failure to follow basic procurement procedures will not be repeated?

5. Paragraph 12 indicates that proper terms of reference and budgets were not drawn up for the work awarded to GCAS and that, in the absence of a fixed price budget agreed at the outset, the Agency was not in a position to exercise effective control over design and advertising expenditure incurred on its behalf by GCAS. Have any other contracts been awarded on this basis? Can you give the Committee a firm assurance that all future contracts will be commissioned under a fixed-fee arrangement?

6. Please explain whether, in your view, expenditure of nearly £1million on the design of a new corporate identity, re-branding of offices as "Job Centres" and the promotion of New Deal represented good value for money.

Following receipt of your answers to the above questions, the Committee will decide whether it would be necessary to hold an Evidence Session on this subject.

I should be grateful for a reply by 4 May 2001. A copy of this letter goes to the Treasury Officer of Accounts.

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You wrote to me on 28 March inviting comment on the actions taken by the Department given the Comptroller and Auditor General's Report on failure to follow proper purchasing procedures in the case of GCAS.

It may be helpful if, first of all, I reviewed the history of the GCAS contract and the action taken by the Training and Employment Agency and Department in relation to procurement practice.

DED signed a Service Level Agreement with GPA in September 1997. At that time T&EA was negotiating a renewal of its 1994 SLA with GPA that had lapsed. It was instead decided in March 1998 to include the Agency within the scope of the DED SLA. By the time this was agreed, the GCAS contract was already underway. However, GPA services were available prior to the establishment of the formal SLA and should have been used as a matter of best practice.

The staff who handled the GCAS contract did not receive any formal training in procurement procedures. Training of this nature was unnecessary because the professional services of GPA were available and should have been used. It is apparent as indicated in the C&AG's report that staff in the Branch dealing with the GCAS contract were not aware in 1997 of the relevant guidance.

Payments totalling £195,210.79 were made to GCAS for a variety of different contracts during 2000/2001. Details of these are set out in the attached Annex B1. £105,092 of this expenditure was for work in Jobcentres related to the compulsory New Deals (New Deal for 18 - 24 year olds and New Deal for 25+) and was paid under the terms of the original GCAS contract following advice from GPA. When devolution took place in December 1999, work on New Deal branding was suspended pending clarification of the future identity of Jobcentres. It was subsequently agreed that they would continue to operate under the T&EA corporate identity. The Department sought GPA advice on tendering for the completion of the New Deal work. GPA took the view that, on value for money grounds, the best approach would be to engage GCAS to complete the work they had already started as any tendering exercise would cause delay and inevitably result in higher costs. Expenditure on the Buttons Project (c£5k) was also for the completion of work started under that contract. Apart from these payments, which were essentially for the completion of work already underway, I can confirm that proper tendering procedures were followed in all other cases.

Following the establishment of the Department in December 1999, comprehensive guidance on procurement procedures has been issued to all staff. For the first few months the Department operated through the arrangements inherited from the old Departments until a Service Level Agreement could be signed starting in the new financial year.

In March 2000 a Departmental Finance Bulletin (No 4) advised staff that a Service Level Agreement with the Government Purchasing Agency (GPA) had been agreed. This Bulletin made it a mandatory requirement to use the services of GPA for all procurement except for the purchase of individual items costing less than £500 where the GPA does not have an appropriate call-off contract. The Bulletin also made it a mandatory requirement to obtain the prior written consent of the Accounting Officer for any proposal not to use the GPA.

In August 2000 Departmental Bulletin No 6 introduced its policy on the use of consultants. This re-enforced the requirement in the SLA to use the services of GPA for purchasing of the services of consultants. (The T&EA was previously subject to the DED policy on use of consultants.)

In addition to these documents, in November 2000 the Department issued Internal Audit Service Bulletin No 6 on purchasing arrangements. This bulletin provided guidance on deficiencies highlighted by DHFETE and DETI internal audit reports. Paragraph 6 provides specific guidance on dealing with contractual change.

These bulletins were issued to all Heads of Divisions and Branches whose responsibility it is to bring them to the attention of their staff. Copies of these documents are attached for information.

In addition to these measures, part of Internal Audit's role is to report any unusual or irregular procurement practices discovered in the course of an audit. The Department also monitors the use of consultants in line with established DFP procedures. I can assure the Committee that all reasonable steps are being taken to ensure that robust procurement procedures are followed at all times.

You raised a number of other issues. My views on these are as follows:

I agree that awarding contracts on a fixed-fee basis should be the normal procedure. There may be circumstances in which a variation to that approach is appropriate. For example, a contract to audit the finances of an organisation where there is a suspicion of irregularity may merit a "rate per day" arrangement where competitive rates are sought but the number of days is subject to review. It is then a matter for the Department to determine the length of the contract given the circumstances as the work progresses. I am not advocating open-ended contracts, but a mechanism whereby they can be amended subject to exercise of proper control by management and on the basis of GPA advice. I expect any other circumstances when a fixed-price contract may not be appropriate to be extremely rare and to be based on GPA advice.

I am not aware of any other contracts that have been awarded on the same basis as the GCAS contract. There were unusual circumstances surrounding the GCAS case. The Agency was initially developing a new corporate identity but this was complicated by the need to launch "New Deal" with it's own unique identity; to match the rapid pace of progress in Great Britain; and, later, to deal with the complication caused by devolution. I accept the real issue in this case was a lack of management control over the contract. The focus of attention at the time was to develop and introduce New Deal quickly: re-tendering the GCAS contract would have resulted in delays. Nevertheless I accept fully that the key loss of control here was in allowing the contract to run on without a tendering exercise.

It is difficult to address the question of value for money retrospectively. However, during 2000/01 when the Department's revised purchasing arrangements took effect, GCAS was awarded a number of contracts following competitive tendering exercises. This indicates that the company is competitive in its field. We believe that the services provided prior to 2000/01 were value for money but what cannot be demonstrated now is that GCAS provided the best value for money possible at the time. This is clearly unsatisfactory.

New Deal has made a significant contribution to the fall in unemployment as evidenced by the fall in the numbers in the target groups for the two main New Deals (New Deal for 18-24 year olds and New Deal for 25+), from April 1998 when New Deal was first introduced. The falls in the target groups from April 1998 to February 2001 are 62% and 57% respectively. While this fall cannot solely be attributed to New Deal, its effect is demonstrated by comparison with the fall in the non-New Deal claimant group over the same period, which stands at 4%. There have been significant, consequential reductions in public expenditure.

Finally, I wish to assure the Committee that I take procurement matters very seriously and that I am fully committed to ensuring that we obtain the best value for money at all times.

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Thank you for your letter of 19 June 2001 on the actions taken by your Department to address the deficiencies which were identified in the Comptroller and Auditor General's Reports on Corporate Governance and Financial Management in Colleges of Further Education (NIA 5 of Session 1999-2000) and University of Ulster: Senior Officers' Expenses (HC 288 of Session 1999-2000). The Committee is satisfied with your response and has decided it will not be necessary to hold an evidence session on these subjects.

I am copying this letter to the Treasury Officer of Accounts.

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