Q51 Mr Bacon: So there are people over in Bermuda running it.
Mr Friedlos: There is a board of directors in Bermuda who take decisions around the property investments. Those are generally not day-to-day decisions. The day-to-day decisions around the contract and how we operate it are taken in the UK.
Q52 Mr Bacon: And you live in the UK.
Mr Friedlos: I live in the UK.
Q53 Mr Bacon: Are you domiciled in the UK for tax purposes?
Mr Friedlos: I am.
Q54 Mr Bacon: Excellent; good to hear it. On this Committee we all like people who pay tax in this country. I should like to ask about the old NAO Report which I was looking at and which was published back in May 2004. It said "The Departments" two at the time "and Mapeley STEPS needed to develop a single business focus that will involve the Departments developing an understanding of how their own decisions impact on the contractor" perhaps slightly worrying that the departments did not have that anyway "and the latter" that is Mapeley "continuing to provide access to its income and forecasts". Yet we find in the present Report which has just been published, in paragraph 3.14 on page 26 that there still is no shared database of information. It says in paragraph 3.14 "The two organisations do not share key information in a consistent manner, such as having a shared database . . . and a joint understanding of the vacation allowances used" in other words, a joint understanding of the way in which the contract that enables you to vacate properties is working. It also says ". . . the organisations do not have a good understanding of each other's objectives and strategies. There is also no shared risk register" either. This is despite the fact that these things were identified and pointed out five years ago and the need for the company, Mapeley, to provide access to its income and forecasts and the need for you and your predecessor departments to have a clear understanding of how your decisions impacted on the contractor. Why has so little happened in the last five years that the NAO is still making this criticism? It is five and a half years.
Ms Strathie: The first thing I would say is that it is degrees. Mapeley do have a shared view of our business plans. As you probably know, because I wrote to you, we have firmed up our vacations. We had a very extensive consultation exercise which finished and the results were announced in December 2008. We have now firmed up our intention of where we planned to cease business activities during the financial year 2010-11. All of that Mapeley has had sight of. The issue comes back to the original question which Mr Friedlos already answered in terms of shared financial information. I would hate the Committee to go away with any notion that there was nothing in that period. My view is that from 2007 Treasury guidelines and best practice suggest a different type of relationship. This contract was not negotiated in 2007 but in 2001. My expectation is, if we are in true partnership with Mapeley, that they will live up to that best practice from 2007.
Q55 Mr Bacon: That is your expectation but what are the actual barriers to having an effective partnership? Are you saying it is whether Mapeley cooperates or not?
Ms Strathie: Yes, but we have to take some responsibility in HMRC. A true partnership is an alliance where there is win-win, there is absolutely shared information about a business strategy going forward, shared thinking of the shape of the business, so a lot of transparency and strategic sharing needs to happen at board level. That is something we put in place with both the Chief Finance Officer in the lead and Dave Hartnett on that board and myself and Nick on a biannual basis. I accept that the Department could have perhaps been more strategic.
Q56 Mr Bacon: The Report actually says that the Department have not assessed the benefits realised by Mapeley in the STEPS deal nor the profitability of the Mapeley group. This is something I struggle with because you did say earlier in answer to the Chairman that you disagreed with the National Audit Office in terms of their narrow definition of value for money but if you have not done that basic assessment-I think Angela Browning asked this question and I am not really content that I understood your answer-of Mapeley's profitability and the benefits which have accrued to Mapeley, how can you possibly undertake a thoroughgoing assessment of value for money? How are you in a position sensibly to disagree with the National Audit Office?
Ms Strathie: I think we are mixing currencies and we have already had this conversation twice. One issue here is managing the contract and managing the value of the contract. There is another issue about Mapeley's robustness and resilience and its viability.
Q57 Mr Bacon: On that last point, may I stop you there? Mapeley came to you within seven months of the contract being signed in 2001 and started bleating that it was running into difficulties and it has done so recently because of pressures arising from the economic downturn. This has been a company with a history of coming to you saying it has financial problems right from the inception of the contract, has it not?
Ms Strathie: I cannot answer that. Can you?
Mr Hartnett: Certainly seven months into the contract.
Q58 Mr Bacon: Not very impressive and it was not a depression then or anything like it, was it, in 2001 and 2002? Most people thought it was a boom.
Mr Hartnett: I do not think it was in the context of Mapeley because property prices went on to rise and some of the reverse premia that Mapeley took later enabled them to come out of that particular financial difficulty. It was not quite a boom in the property that Mapeley held at that time.
Q59 Mr Bacon: I should just like to go back to the first of your two points in your last answer Ms Strathie and that was about the management of the contract. You agreed that it was a fair criticism that not enough, in the words of the Report, appropriate legal and commercial skills were applied to it. I still do not understand why not. This was a £4 billion contract. Regardless of what particular Treasury guidance there was or was not at the time, surely if you are entering into a contract of this scale, common sense would suggest that you apply serious commercial and legal resources to it. Why was that not done?
Ms Strathie: It would be very easy for me to agree with you and simply say I do not know and my predecessor should have done better. All I can point to is the history of this type of outsourcing at that time. I know from different departments I worked in at that time-and I do think it is fair criticism-that there was a tendency to believe that the outsourcer was going to deliver everything as per the contract and that we scaled down the capabilities, what I would probably refer to as strategic management, strategic thinking, when we did outsourcing, which was something many parts of Whitehall had to learn from going forward. We accept that criticism. I do know from driving the structure we put in place and the relationship now how we can get better value from the contract and better sharing.
Q60 Chairman: I know there is a convention in this Committee that permanent secretaries have to take the rap for their predecessors and they cannot say they were not there, but we would be much happier if you could just give us your honest assessment of what happened then. If you think it was badly handled, say so. It is much better so we can learn lessons for the future. There is no point always just dropping a straight bat on something and not getting the truth.
Ms Strathie: I do not know the extent to which the Department managed the risk of Mapeley as a new player in the market coming in on the bid they did and what that meant the Department ought to have done to ensure that this was the right contract and ready to deliver. I do not know. I know they are some of the things I have learned. I also know on this side of the contract there is little point in anybody adopting a procurer/supplier/deliverer relationship. It does take a partnership and it does take real understanding of each other's businesses to get best value. I also know that if Mapeley can only help us get that value, if the Department has a clear understanding about its direction of travel over years to come and what that means and that that is shared, those for me are the things I have learned over the years.