Q31 Angela Browning: Thank you. Ms Strathie, may I bring you back to something which was mentioned right at the beginning? If you look at page 8 and the summary, under "e" the heading is "Understanding value for money". I was a little bit disconcerted at your comment about the interpretation of the NAO Report in terms of what value for money really means. Just to set my mind at rest let us look at that "The Department does not monitor the overall cost of the contract against initial models to understand whether it is achieving value for money". Is your understanding of value for money that that is something you should be doing?
Ms Strathie: Yes; absolutely. I separate the two issues of what the contract was that was put in place and enabled versus the things that the Department has seen through since that time. It is absolutely the job for the strategic partners in managing this to look at the value from the contract as business strategy changes and ensuring our estate strategy follows it and that we get full value.
Q32 Angela Browning: It goes on to say the Department "has not undertaken analysis on the potential savings available". Is that something which has now been put in place?
Ms Strathie: Yes, but, bearing in mind that we are talking about what happened from 2001 to 2009 and how we want to proceed from now on, we have a contract which enables us to move out of properties under different terms, depending whether they are core or otherwise. Rather than just take what the contract offers us at the moment, given how fast the world is changing, it is really important for us to look at this across both our businesses and ask how the taxpayer could get better value in the future.
Q33 Angela Browning: That would bring in the next bit which says "analysis on the potential savings available" and then, going on, it says "Until recently it had a limited understanding of its liabilities in the event of contractor default". I assume you have addressed that now.
Ms Strathie: Yes.
Q34 Angela Browning: How have you addressed that?
Ms Strathie: We have a really extensive business continuity plan. We do have an understanding of our liabilities but I would say-
Q35 Angela Browning: Sorry; not your liabilities the liability of the contractor.
Ms Strathie: It would default to us.
Q36 Angela Browning: Yes, but there is an underlying issue here, is there not, in that you are obviously very aware of your own liability? However, what this is identifying is an understanding of the liability in the event of a contractor defaulting. In other words what their position was.
Ms Strathie: That falls on us.
Q37 Angela Browning: Yes; of course.
Ms Strathie: Primarily, if a company becomes insolvent, if any of my suppliers becomes insolvent, I have to have a plan for carrying up the risks associated with that. Clearly we have no preferred creditor status in any of this but we have done extensive work to understand what that would mean for HMRC were that to happen. Of course, not only would we lose the flexibility we have in this contract around reshaping the business, we could potentially have outstanding bills, depending what state the company was in at the point it became insolvent.
Q38 Angela Browning: In terms of a large long-term contract like this, what interim steps do you take from the time you sign a contract to ensure the viability of the contractor? Presumably when you first sign a contract you do the usual checks and so on in terms of their viability.
Ms Strathie: Yes.
Q39 Angela Browning: What interim steps do you take? It seems to indicate here that it was only recently that the Department had an understanding of the liabilities, of what might happen if the contractor defaulted. What interim measures do you take to make sure that all is as it was originally said in the contract?
Ms Strathie: I would not like to give the impression that it is only now that that work is going on because my own piecing together of what has happened over the time suggests otherwise, that it is an ongoing part of the Department's business to assess that.
Mr Hartnett: The right thing to say is that we started to look at the viability of Mapeley very early because it was some nine months after the contract was signed that Mapeley raised with us the issue of financial difficulties. We brought in bankers and accountants at the time to have a very good look at their viability and over a period of about two years then put in place checks both through conversations with Mapeley and through looking at the markets through professionals. It is fair to say that the intensity of the work then did not continue. We thought we had reached a position which was reasonable and then it started again in the last couple of years when there have been market difficulties and the like. So there have been two periods of really intense work.
Q40 Angela Browning: May I take from that that your understanding of value for money, from the replies you have just given, are actually no different from that of the Comptroller and Auditor General?
Ms Strathie: The point made in the Report was that the contract was set up to enable an amount of money. The Department did not appear to have had a strategic approach as to how it was going to extract maximum value throughout it. I can only say "appear" because I was not there. My issue was that the Department has achieved significant savings and significant value for money in the way it has shaped its business and this contract has enabled us to do that as the Department has modernised. That is the only difference.
Mr Morse: I do not think anything you say is wildly apart. Just to be clear about the test we apply, it is not a counsel of perfection; it would be unreasonable to expect that everything which could conceivably be achieved must be achieved. That is not the position the NAO take. What we do say is that what, by normal diligent effort, could and should have been achieved, if that has not been achieved, then I am not prepared to say that something is value for money. If you should have sold something for £3 and you sold it for £2, just because £2 is more than it cost you does not make it value for money unfortunately. There is an expectation of due care and attention and effort to preserve public value and if you are not at that point, I do not think we can testify that it is value for money. It is our view that if you had had those plans in place and you had been more engaged and more constantly concerned about viability and so forth than you actually were, we would not have been criticising on value for money. It is not a question of saying you should have achieved every pound but we feel the diligence, the effort and the competence applied to it was not really enough for us to come to a positive opinion about what could reasonably have been expected in the circumstances.