Q11 Chairman: Okay, Sir David. Can I turn to you? The management of the programme has got off to a bad start, has it not?
Sir David Omand: No, I would not agree with that. I think the original scoping of the programme was not well done. As has been explained, the difficulties associated with moving a very complex networked, IT-based set of systems should have been brought out earlier, but the management of the programme I think has been exceptionally well handled, including the containment of cost as well as the negotiation phase which, as the NAO Report acknowledges, was well done.
Q12 Chairman: We have got a PFI here which increased by 21%, we have got the original estimate for technical transition increasing 10-fold to £450 million. You claim that the programme was well managed from the start. My question to you is, what would you do to ensure that it is better managed in the future?
Sir David Omand: My remarks were about the management of the programme once the programme was established, which I think is a model. The problems you have drawn attention to, which are very real problems, arose before the exercise was put on that managed programme basis. Part of it, as I say, was the difficulty in anticipating the technical transition and part was bringing the bids into compliance. The 21% includes the uprating which was required in the cost of the original bids as submitted. That, I would suggest, is not entirely a fair comparison.
Q13 Chairman: Some people might say that we are all filled with admiration for the work that GCHQ does. Clearly it is a vital national resource and we pay tribute to the work that they do and the work that Dr Pepper's staff does. It is clearly filled with people of the utmost brilliance and competence, but we find it difficult to understand why a project of this sort could not have been better managed from the start and why some of these technical transition costs, for instance, could not be foreseen. You must surely have worked out in the fast-moving world in which we live that you might have encountered some of these problems?
Sir David Omand: The most important point I would like to make to the Committee concerns the nature of the change in the technology in the period of the 1990s. We are dealing, at the beginning of this period when the original plans for the computer block were drawn up, with a world in which there were not servers, there were not intranets, there was not the set of management tools which exists today to enable complex networks to be managed. None of that existed. In the space of a few years that technology was applied by GCHQ in a pioneering way but in an organic way which meant that by the time that serious work had to be done on the transition the engineers at GCHQ did not have the tools available to support the transfer of the technology from one site to another without significant disruption. What the additional costs to which you refer have brought us is very substantial gain. We now have a 21st century system, we have proper management tools with a proper management basis for the future development of that system, all of which has cost a lot of money but I would submit is a very good investment.
Q14 Mr Williams: Sir David, once it was identified that this project was needed was there any urgency about getting the new facility? That is really a yes or no answer, is it not?
Sir David Omand: Yes, there was. If you are referring to the 1996 period, yes, significant difficulties were being experienced with the existing computer block and indeed emergency repairs and extra chilling systems had to be introduced.
Q15 Mr Williams: So in 1996 this was recognised as being urgent. In paragraph 1.14 on page 8 it says that the main GCHQ Board approved the PFI solution for the project. That was in April 1997, not long after they had identified it, but then, if you look at the next paragraph, it was two years and one month later that it was approved by a minister.1 If there was urgency, if there was some service need in getting this facility, why did it take two years and one month to get from the GCHQ Board to a brand new incoming minister?
Sir David Omand: There are two parts to the answer to that. One is about the length of time that it takes to develop a PFI solution to the point at which there is a firm case to put to ministers. The other is about the necessity which GCHQ had in 1996 to go the PFI route to demonstrate whether or not that route would result in a value-for-money solution. The alternative, which was a publicly funded construction, was not available.
Q16 Mr Williams: Switching to the increase in costs, if we turn to page 19 this is where we spell out the increase in costs from £41 million to £450 million. That has been described as an increase of 10-fold but, of course, when it originally went to the GCHQ Board it was £20 million, was it not, so it is really a 22-fold increase?
Sir David Omand: Not entirely.
Q17 Mr Williams: Because of the cost of the technical transition.
Sir David Omand: The paper which went to the GCHQ board reported the transitional costs as £20 million. The underlying work that had been done and which was, of course, known to the directors had given a higher figure of £41 million.
Q18 Mr Williams: Although it was an increase of some magnitude, it did not set alarm bells ringing and it went up another 10-fold. Is this not somewhat surprising since the basic reasons here, as you well know, we were familiar with from a previous attempt at moving a command centre. You remember Operation Pindar, buried in the RAF and it went up another 10-fold. Is this not somewhat exposed it. There they were going to move the old command centre to an existing underground site and they ran into exactly the same problems. You would be with successive gaps in service if you did it piecemeal, and yet these lessons were not learned and so the costs escalated. How could you ignore what had gone on before?
Sir David Omand: I cannot excuse the failure to recognise these issues earlier. I take the responsibility for them. The situation in 1996 was based on the earlier plans for the new computer block. It was two years later, partly as a result of work done on the millennium transition, that really brought to light the difficulties and complexities associated with technical transition, so there was a significant period in which this problem was not picked up. Perhaps if the programme had been run on a more integrated basis earlier that might have triggered some alarm bells. I think the Pindar case is different.
Q19 Mr Williams: But when you go back to Pindar, because it is so parallel other than that you managed to increase it by a greater magnitude, there at the outset the problems with far simpler systems were not identified of moving to a new site and the costs escalated. Surely the Ministry of Defence-and I am not sure which of you should answer on this-should have been aware of the lessons of Pindar and should have made sure that you did not repeat them.
Sir David Omand: Let me take that. I wish I had been aware of those lessons at the time. Perhaps it would have sparked of some train of thought and led to deeper questioning, but I am afraid it did not.
Q20 Mr Williams: Before you go beyond that, I want to pause there. Do you remember, Sir John, that you produced a special report on Pindar in which you highlighted all these difficulties? From the NAO perspective is it not surprising, in view of the scale of failure that was revealed by Pindar, that the MoD had not even taken on board the most basic messages from that ultra expensive exercise?
Sir John Bourn: I think that the Pindar exercise did relate to the responsibilities other than GCHQ. Nonetheless, you are right, Mr Williams, in the sense that it was the question of transferring a changing range of technical equipment from one site to another and what at least in principle appeared to be the same sort of difficulties arose on a much larger scale here, of course, than in Pindar and in that sense lessons were not learned from it.
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1 Note by Member: Mr Williams realised that he had misread the dates and that there had not been a two year delay as he suggested. He later said "I withdraw that point".