Public Audit Committee

Meeting date: Wednesday, June 20, 2012

Official Report 474KB pdf

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Section 23 Report

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“Learning the lessons of public body mergers”

The first substantive item on our agenda is consideration of the section 23 report, “Learning the lessons of public body mergers”, by Audit Scotland. I welcome to the committee Mr Black, for the final time as Auditor General for Scotland. I also welcome Barbara Hurst, Dick Gill and Andra Laird, who I think was the project manager for the report. I invite Mr Black to introduce the report.

Good morning, convener. The report was published on 14 June. As the committee will be aware, back in 2007 the Scottish Government set in place a programme to deliver a clearer, simpler and more effective landscape of public bodies. That programme has included 18 mergers over the past four years. As all of the mergers have taken place quite recently, the report does not provide a full, detailed audit of their performance. At this stage, it would be premature and quite impractical to do that. What we have done is look at about half the mergers to identify what lessons might be learned for planning and carrying out any future mergers.

We examined nine mergers in total. Of those, the four that we looked at in some detail were those involving Skills Development Scotland, Social Care and Social Work Improvement Scotland—the care inspectorate—Creative Scotland and Marine Scotland.

Audit Scotland has produced a separate good practice guide, which identifies issues that should be considered when mergers are undertaken. We see that as being a pretty important part of the project, which is not really a review of performance but is more about learning lessons. We believe that a good practice guide that draws on the evidence from the review should be useful to managers and practitioners in the future.

I will briefly highlight key findings in four areas: the importance of leadership in mergers; the planning process; the estimated and actual costs and savings; and the impact of the mergers, as far as it is known, on the organisations’ performance.

One clear finding is that strong leadership is needed from the early stages of public sector mergers to ensure that important decisions are made about new organisations’ vision, structure and plans. Exhibit 2 on page 8 of the report sets out the main challenges for those who lead mergers, which include setting the strategy for the new organisation, establishing effective governance, getting the organisation’s structure right, workforce planning, creating a sound organisational culture and, last but not least, ensuring that there is good communication with staff and good financial and performance management.

In the mergers that we examined, we found that permanent leaders were not always in place early enough to make progress with all those features. Because of the importance of putting clear and strong leadership in place early on, the report suggests that chairs and chief executives should ideally—and I suppose that that word is worth emphasising, because we recognise that such matters can be difficult—be appointed six months before the start date of new organisations.

We looked at the planning of mergers and found that, in all cases, the Scottish Government worked with merger teams and ensured that most mergers happened on the date that was originally set. We found that more attention should have been given to planning for how the organisations would develop after the merger. As a result, some organisations operated for too long without a clear vision and with interim staffing structures.

Turning to the financial consequences of merger, the four cases that we reviewed in detail have reported merger costs of £42 million so far, but reductions in staff numbers are expected to reduce costs by up to £20 million a year. Nevertheless, we found gaps in the analysis and reporting of the costs of and savings from mergers. Exhibit 7 on page 19 of the report shows the range of costs and savings that might typically arise from mergers. In the four mergers that we audited in detail, estimates of the expected costs and savings were made at the outset, based on the information that was available at the time, but the bodies did not record actual merger costs and savings fully or report those. In the main, the recording of merger costs was restricted to significant staff costs, such as for voluntary early release. The non-staff costs that were incurred, such as consultancy or information technology costs, were often not separately identified as being attributable to the merger, although they will have been incurred.

The report also suggests that the reporting of savings could have been better. Merging bodies have not distinguished between the savings that were made during the merger and other efficiency savings. Nor, from the reporting of the efficiency information, is it clear if savings had an impact on service quality. It is really important to state here that we do not expect a counsel of perfection. We recognise that such mergers often take place against tight timescales for sound business reasons. Nevertheless, the report encourages those who are planning for future mergers to pay more attention to such issues.

The Government’s general expectation was that the mergers would help to improve service delivery to users and the efficiency and performance of public bodies. As I say, it is early days in being able to report on whether that has been achieved; it is really too early to see performance improvements. However, leaving that aside, performance measurement systems in merging bodies are poorly developed and, consequently, none of those that we examined was able to demonstrate that its performance has improved, although all have reported significant changes in how they deliver services.

In conclusion, convener, we suggest that more attention should be given early in the process to identifying the criteria that will be used to decide whether the merger has been a success—to put it at its simplest. We also recommend that merging bodies work hard to develop better performance reporting systems.

My colleagues and I will be happy to answer any questions.

Thank you very much. Perhaps I could ask a little bit about the sample. You said that over the period that Audit Scotland looked at, there were 18 mergers. You looked at nine of them, which is half, and looked in detail at four of those. Therefore, you examined in some detail four mergers out of 18. Was the sample wide enough to give a general sense of what has been happening with mergers? Why did you choose those four in particular?

The judgment made was that it would be better to look at the larger organisations and a range of organisations that had different antecedents. The four mergers that we examined in depth accounted for 90 per cent of the estimated costs of the 18 planned mergers, so we expect them to make up the majority of the costs to date. The organisations that we looked at in detail have a different kind of feel to them, so we are trying to get a sample across all bodies. As I emphasised in my opening remarks, this is not a full performance audit. We have done sufficient work to draw out some of the high-level findings and lessons for the future.

One aspect that is clear from the report—you mentioned it in your introductory remarks—is the consistent lack of information about the costs of each of the four mergers and the savings that could be attributed to it.

You said, I think, that two things could have been better and that you were not looking for a counsel of perfection. However, the report seems to indicate that, apart from staff cost savings, all four bodies could provide no information whatever about what other costs they had incurred or what savings they could attribute to the merger, as opposed to more general efficiency savings. Far from being perfection, is not that the opposite of perfection—whatever the word is? Does it not reflect an unacceptable lack of attention to what is happening in the course of a merger?

A key recommendation in the report is that in future public bodies that are being merged and the teams that are planning mergers should give greater attention to their true overall cost. After all, public funds are being spent on mergers, so it is entirely reasonable that we should be able to identify how much the mergers cost in total. As you rightly say, we have not been able to do that.

Dick Gill might say a little more about the background, the non-staff costs and the difficulty that he had in trying to identify numbers.

Unfortunately, the merged bodies were not required to report and have not reported the full costs of mergers. When we looked at the situation, that surprised us as auditors and it is a clear lesson for the future.

That said, the information in the report captures significant costs incurred by each of the bodies, for staff severance and so forth, and we do not know what other costs that the bodies incurred have been absorbed into their running costs. For example, a number of the bodies will have incurred costs for consultancy activity, or they might have needed to realign their organisation and there might have been property changes and so forth. Those costs have not been tracked and monitored as merger costs, although they will, of course, have been tracked and monitored as part of the governance of the individual organisations.

Is it fair to say that, despite the mergers being the result of ministerial decisions that were justified and argued for on the basis of making savings and streamlining the public sector landscape, when the mergers took place ministers did not ask for any tracking or evidence that those savings were being made? The organisations involved did not track the costs because they were not asked to do so.

I think that the view of the Scottish Government is that it is the responsibility of the new organisations to demonstrate value for money, cost effectiveness and so on. The Government sees that its role is not necessarily to get involved in bodies’ operational management, which is a matter for the boards and senior management. There is no doubt that each of the bodies has made significant savings, but they have not clearly demonstrated the total costs and benefits in the way that we might have expected from the appraisals, options analyses and so on that were done before organisations were merged.

10:15

On what Dick Gill has said, particularly the point about savings not being delivered, it would be too pessimistic to think that there will be net costs from the merger process. For Skills Development Scotland, for example, the largest net saving was estimated at £57 million over five years. Its costs were higher than expected, at £35 million rather than £20 million as a one-off, but Skills Development Scotland estimates that the costs will come down by £16 million a year and that that will continue every year. There is no doubt that, on that analysis, there will be savings from the merger.

The rationale behind all the mergers has been not just cost saving but more efficient and streamlined delivery of whatever service the bodies provide. However, in paragraph 32 of the report, you make it clear that, in the cases of the four bodies that you looked at in detail, there was an attempt to continue with business as usual while the mergers took place. Two or more organisations came together but there was no real change in the work that they did; they just did it under the umbrella of a single organisation. Paragraph 32 is not particularly positive about that benefit of the mergers—is that a fair reading of that paragraph?

Yes, convener, that is a reasonable conclusion. However, it is important to place that in context. We say later in the report that the evidence is that none of the mergers had an adverse effect on service delivery. The team and I got the impression that the mergers were, generally speaking, conducted to fairly tight timescales and that everyone—whether ministers, the management or the practitioners involved—was focused on maintaining service delivery and was able to do that. A lot of the mergers are recent, and it would be unreasonable to expect to have seen significant service redesign at this early stage. However, now that Skills Development Scotland has begun to settle down, it has introduced new programmes, which we attempt to summarise in paragraph 80 of the report. I am sure that that is well known to committee members.

Convener, I would like to link what you have suggested about our findings in relation to measuring performance and delivering improvements in service to the real learning that we have identified about the importance of early leadership and clear strategic planning. From looking at the mergers, we learned that there was a focus on making the mergers happen on a given date. That is an important business efficiency consideration, but there was a lack of clarity about what was going to be secured two, three, four or five years down the line. An important lesson to learn for future changes in the public sector is that we need to think not just about the implementation but about what improvements will be achieved after the event.

Thank you. I think that Mr Scott wants to pursue lessons learned for future changes in the public sector.

Mr Gill, please correct me if I misheard your evidence, but I think that you said that the bodies have not reported the cost of the mergers and were not required to do so. Can you please clarify who did not require them to report the cost of the mergers?

You heard me correctly—that is the situation. Andra Laird might want to comment on that in a moment. The Scottish Government gave clear guidance about the importance of measuring and recording merger costs and so forth, but I do not think that there was any specific requirement to report back to ministers. However, I hesitate slightly in saying that.

If I lodged a parliamentary question asking what the merger costs were for Skills Development Scotland, what answer would I receive—a complete guess?

I dare say that SDS would research the matter and try to give you the best estimate. When we reviewed the mergers, we asked for that evidence but it was not available to us. We did not ask SDS to carry out a special exercise to establish that.

So the ministers of the day do not know the costs of merging these organisations.

Well—

Let me broaden it to the Scottish Government, then.

That is really for the Scottish Government to say. I am not aware of any basis on which that could be reported.

So we should ask the Government about that.

Yes.

I think that you can found with reasonable confidence on the analysis in the Audit Scotland report.

But I suppose that the point that I am pursuing is that you had to dig to find that information. It was not readily available to you.

Yes. The Audit Scotland team has worked to put these figures together.

In that light, then, how can Parliament have confidence in the numbers being presented to us on the merger of police forces, which is happening right now?

Clearly, we have not carried out an audit of the on-going processes in relation to the police. Unfortunately, therefore, I am not in a position to answer that question.

But, according to the report, you had to dig for and find these particular figures. It has not been possible for the Government to give you the figures because it did not request the bodies to report them. Would it not be fair to assume, therefore, that the same would apply to the police?

That would be your judgment. I am sorry, but I really have no knowledge about the planning that the Scottish Government and the police service are undertaking for that merger and the extent to which they have been able to develop a robust analysis. It would be best to address those questions to Scottish ministers.

We will do our best.

Finally, I want to try to establish the same principle with regard to leadership. As I understand it, a minister of the day decides to merge certain bodies; he or she introduces legislation and takes it through Parliament; and after that he or she is deemed to have divested himself or herself of the political responsibility to get the job done. Who does responsibility then rest with? From your work on the report, is it clear that a senior civil servant has had sole responsibility for taking each merger through?

I am sorry—sole responsibility for what?

I presume from the report that, in the absence of an appointed chief executive or an appointed board, the civil service has been responsible for the task of taking the merger forward.

Yes. Each of the mergers that we examined would have had a programme board, which would have been a kind of high-level strategic management committee in the Scottish Government with responsibility for ensuring that the merger happened and for facilitating the process. What tends to happen is that the programme board ceases to operate shortly before or around the time that the new body comes into operation, and responsibility and accountability for the body’s activities then pass to its chairman, its board and its senior management.

Did Audit Scotland find the programme board to be different for each merger? Were different people on the board? Was there any continuity of expertise?

Andra Laird might want to comment on that, but I believe that each programme board was bespoke and comprised different people. I am not sure whether there was necessarily any common membership between the boards.

That is quite right—different people were on different programme boards. Each board developed its own approach. I believe that the first programme board was established for SDS, and it stopped at a fairly early stage. Lessons were learned from that merger and, afterwards, programme boards stayed in touch with their mergers for a little bit longer. However, that approach did not come about as a result of having continuity of membership.

Should those boards have played a role in addressing the gap that your report has identified and which we are exploring, which is that no one required the merged bodies to properly plan for, track and provide information about costs of and savings from mergers? Should the programme board have had that responsibility?

One of the gaps that we have identified relates to success measures for new organisations, and we think that the Scottish Government’s programme board needs to be clearer about what success should look like. That is not to say that the programme board that is created to help establish the new body need go beyond the new organisation’s inception date, but what one might call the delivery promise should be clear and form the basis of subsequent reporting and accountability by the individual merged body.

As is sometimes the case, there is a good story behind this but in audit, of course, we tend to focus on the negatives, because they are perhaps more interesting.

I am looking at the comments in the report on the

“weaknesses in performance measures and baseline information”.

It seems to me that a recurring situation in public bodies is one of a lack of information, of gathering information and of performance measurement. Is that a correct interpretation? That seems to be a legacy issue rather than an issue that has come up recently. We have seen that in other audit reports. [Interruption.]

Mr Beattie’s microphone is not working. Perhaps he can move to a different seat.

Do you want me to say again what I said, convener?

Yes.

There is a lot of good news in the report but, as this is an audit committee, I suppose that, of necessity, we tend to look at the negative side, which is perhaps a wee bit more interesting. The report comments on

“the weaknesses in performance measures and baseline information”

and a lack of those things. That seems to have been a recurring theme in audit reports over the months. There seems to be an endemic lack of performance information gathering, and that seems to be a legacy issue. Often, systems do not seem to be in place. Is that fair comment?

Yes, it is fair comment. We have had to say in many of our reports that the quality of the information that we have had to make them on is less than satisfactory. To different degrees, we have had to use audit resources to devil and get together data sets that can help us in putting reports together.

That said, the direction of travel is one of improvement. The performance targets for the whole of Government and individual parts of it, such as the health service, are clearer and more fit for purpose than they used to be, and financial information is improving, but there is still a way to go. It is fair to say that getting the data together is quite often very challenging, particularly in relation to things such as partnership working, when we are looking at whole systems. Perhaps Barbara Hurst can comment on that.

That is absolutely true. We ask for information not for the sake of it, but because we think that it is good management information that will be needed to manage properly.

On the point about the negativity of audit, we try to be positive when we can.

I realise that, but I was quoting from the report.

The cost overrun has been discussed. The £30 million cost that was forecast became £42 million, which is quite a substantial overrun. Is there a primary reason for that? Can you put your finger on an area and say that it was the main driver for the overrun?

The largest share of the cost of the four mergers that we examined was attributable to Skills Development Scotland, which is a very large and significant public body that currently has around 1,100 staff. Its costs account for a great deal of the reported overrrun. We say in the report—Andra Laird may be able to help me with the reference for this—that at the outset, when it was created, Skills Development Scotland ran into unforeseen equal pay costs. I think that it incurred an extra £5 million or £6 million—I cannot remember the exact figure in the report—of completely unanticipated costs.

In addition, the level of severance under SDS’s voluntary severance scheme was higher than expected—Andra Laird might be able to help me with that, too—and therefore the costs associated with severance were higher than expected. Of course, the savings might be higher, too. Most of the increased costs are the result of the large scale of SDS’s activities.

10:30

Were staff reductions a driving factor in the overrun? Was the staff reduction side of things more expensive than anticipated in all the organisations in the initial stages, or was that issue unique to SDS?

SDS is probably in a unique situation because it is such a large organisation. The figures for Creative Scotland suggest an underrun, if anything, in relation to what it expected to spend on severance and what it spent. Creative Scotland’s costs are much lower—the information is in paragraph 72. Creative Scotland’s costs over five years were estimated to be £3.3 million. Our understanding is that so far—over three years, not five—the merger has cost £2.7 million. However, I would be wary about generalising, because each merger was specific to its own circumstances.

I was optimistic and looked for good news in the report, but I did not always find it. I was shocked to read that Skills Development Scotland lost 395 staff. Despite that, it says in paragraph 80 that SDS has

“maintained or expanded the number of training places”.

Was the organisation grossly overstaffed? Given the financial constraints on our economy, many people might ask how an organisation could lose 400 members of staff and then be more efficient and provide a better service. That is probably the issue that shocked me most. How could SDS do a better job with 400 fewer staff?

The relationship between the number of staff and activity on the provision of training places and so on is important. Skills Development Scotland certainly told us that its ability to deliver more training places and so forth when its staff complement was reducing was a measure of its improved productivity. We were cautious about that, because we did not see that SDS had developed robust systems to demonstrate the relationship between staffing and training places and so on.

Whether the organisation was grossly overstaffed is a question for SDS. In exhibit 10 on page 25, we refer to some of the changes that SDS is making as a result of the merger, such as the launch of the my world of work website, which features prominently as a big part of the service. You would need to ask SDS about this, but my understanding is that it is moving engagement and interaction on to the web and stepping back from universal provision of careers advisers in schools and locations across the country. I think that SDS thinks that that is a more efficient and effective approach; I am not in a position to make a judgment on that.

It is a hugely controversial area given that there are 104,000 unemployed young people between the ages of 16 and 24.

Indeed.

However, if Skills Development Scotland can lose 400 staff and do a better job, I suppose that we should welcome that.

While you were responding to Colin Beattie’s questions I noticed that note 3 to exhibit 9 states:

“No merged body has assessed net savings.”

That is a sad indictment on this organisation. Quite a few of the committee members were MSPs during the previous parliamentary session. The reform of public bodies was a flagship policy that was supported by all parties. I was on the Health and Sport Committee at the time and we went through all the savings that were to be made—we were provided with financial memorandums to show that savings would be made to the public purse. I think that every single MSP supported the policy.

In doing the audit, did you go back to the claims that were made—I am looking at a supplementary financial memorandum, but the claims are quite difficult to pinpoint—and that we all supported, and compare them with what Colin Beattie referred to—the £42 million merger costs, which is higher than the £30 million forecast? It seems to me that pretty well every cost was higher than forecast. You are unable to say how much the mergers that you examined cost, and in paragraph 66, the report says that you

“do not know which efficiency savings were made because of the merger or whether they could have been achieved without merging”.

I almost feel that I have been conned. Every MSP signed up to the policy—it was known as the bonfire of the quangos and was led by an able minister, Alex Neil. We were all told that we were going to save huge amounts of money and that duplication would be reduced and so on. I have come along today and I am struggling to find that news. Can you give me a bit of good news that would show that voting for the policy was a good idea?

I draw your attention to the section that starts in paragraph 67 on page 21 of the report. The strapline is that in the four mergers, 90 per cent of the costs are accounted for by the changes, which cost £39 million, but the reductions in staff numbers are projected to save £20 million each year. As I may have said, you can be reasonably confident that there will be significant net savings over a number of years. What has happened is that the time when the net savings start kicking in has moved to the right somewhat because the costs are a little bit higher. Nevertheless, there will almost certainly be significant future net savings annually.

The other positive message is that all the evidence that we had was that each of the bodies affected by the merger did keep services on the road, so to speak. Some evidence is now coming through from, for example, Skills Development Scotland and the care inspectorate, that they are seriously thinking about elements of service redesign, and we see some of that coming in already in Skills Development Scotland.

I think that I am right in saying that note 3 to exhibit 9 states:

“No merged body has assessed net savings.”

That is correct.

Paragraph 59 states:

“The assessment of costs is also incomplete because recently merged bodies are still incurring costs as changes are introduced”.

Furthermore, under the key messages section on page 18, the last line—which is highlighted in blue—states that

“there was inadequate analysis of saving and efficiencies.”

The truth is that, as we sit here today, despite all the promises that were made to us about a bonfire of the quangos, we cannot put hand on heart and say that that policy is saving taxpayers millions and millions of pounds or that it has fulfilled the promises that were made in the legislation and the financial memorandum. Would you agree?

As a supplement to what the Auditor General said, we drew on the financial memorandum for the £30 million estimate, against which we reported an outturn of £42 million. There is no doubt that good and proper estimates of the costs were made, so we do not have a concern about a gap in that regard. Our concern is about a lack of precision in measuring the outturn against the estimates. What we have revealed is that, inevitably, some of the estimates were wrong and that some were underestimates.

The costs are still going up, and you confirm that, in hindsight, the estimates are likely to be wrong.

We know that they are wrong but, as the Auditor General indicated, it would be very pessimistic and probably wrong to say that costs outweigh savings. We are very clear about that in the report.

You referred to the policy background to the mergers. Exhibit 5 on page 14 of the report summarises the high-level aims for each of the mergers that we examined in detail. It is important to remember that there was a sensible case for making the mergers. It seemed to be a good thing to do in policy terms.

Yes; that is why we supported it.

Control of costs was needed. There was some control of costs, but some of the precision in measuring outturn against estimates was not as good as we would expect.

Thank you.

Part 1 of the report is on leadership and governance and makes the good recommendation that the

“permanent chair and chief executive”

of a merged body should be appointed as soon as possible and

“at least six months before”.

We see some of that happening in future mergers, perhaps with lessons having been learned.

In part 1, are you angling towards suggesting that there should be more than just Scottish Government guidelines? That question could apply to the whole report. Should there be something more robust? Should your recommendations become statutory requirements, particularly those on leadership and governance?

The short answer to that is no. First, I do not think that one would expect there to be a statutory framework to govern the area. It is important that we legislate only when we have to. Secondly, there will be different contexts for each event and project, so a response must be designed to fit the circumstances. What is important is that some basic principles are applied and we have tried to capture those in the report. Not the least of them is the importance of ensuring that the leadership team is in place as early as possible to deliver all the requirements that we itemise in the report.

Thank you. You have referred to paragraph 80 of the report a couple of times with regard to “significant pressures” that faced the mergers. Such pressures, given the current climate, will only become more significant. However, despite the significant pressures on the mergers, service delivery does not seem to have been adversely affected. As others have said, significant mergers are coming up in the future. What were the factors that meant that the pressures around the mergers did not adversely affect service delivery? Do you see those factors being adversely affected by the current climate and in future? Do you have any cause for concern on the service delivery front?

As you might imagine, my colleagues and I hesitate to attempt to predict or forecast what the future might hold. That is not our role. Also, given the high level at which this particular project was undertaken, we do not have information that can help populate a full answer to your question, so what I say is slightly speculative. However, it is clear that in major mergers, such as in the creation of the care inspectorate, there will be groups of professional staff out there continuing to deliver the service on a day-to-day basis. What seems to have happened pretty successfully is that the service continued to be delivered while the merger process was being enacted at a more strategic level. That is something from which one can take some encouragement in relation to whatever mergers might be ahead. The professional staff will continue to deliver the service that is expected of them. Clearly, they are entitled to good leadership through that process, hence the recommendation about addressing that issue sufficiently early.

10:45

I used to work for Learning and Teaching Scotland, which was subject to this review process. It became Education Scotland recently, although that is not covered in detail in the report.

Colin Beattie talked about aspects of negativity. I do not think that those comments were aimed at Audit Scotland. They were aimed more at some of our colleagues’ interpretation of the issues. The report contains quite a number of positive messages.

The Scottish Government’s intention was to simplify and clear the public sector landscape. The fact that 28 bodies are going and 18 mergers are taking place—which, as Mr Black pointed out, will result in recurring savings of £20 million a year—is a positive message for this process at this stage in the game. I suggest that any members of the committee who feel conned or shocked are a wee bit off the mark.

In my experience, one of the difficulties in a merger process is harmonising staff terms and conditions. My experience is that that can take years to achieve. Clearly, that will be a recurring cost in the merger process. One of the other elements that Mr Black mentioned was the IT cost provision, which somehow—strangely—never gets included in the merger cost estimates and so on.

Has the harmonisation of terms and conditions been completed for the organisations that you have looked at? Also, could you talk about the particular problems with the estimation of IT costs in the merger process?

I will attempt to answer—Andra might back me up in a moment.

Exhibit 8 on page 20 summarises the costs of harmonisation that are known so far. Most of those costs relate to the situation in Skills Development Scotland. I think that it is operating in a harmonised environment now, and I think that the same is true of Creative Scotland. I am unsure about the care inspectorate—I think that there is still work to be done in that regard in that organisation.

There are probably still a few things to tease out on that.

I do not think that there are any issues with Marine Scotland, because many of the staff were civil servants.

The IT issue is a good illustration of the sort of area where we think that there will inevitably have been costs, but they have not been reported as costs associated with the merger. Certainly, SDS has done some important work on procuring a completely new set of IT support services in partnership with Scottish Enterprise. It is transforming its IT, but that has not been attributed as a cost of the merger, and we have no way of estimating what that cost might be.

It is a difficult area. When a new, merged body invests in IT infrastructure year on year, at what point does that become not a merger cost? That is one of the difficulties with a process such as this.

Similarly, on the harmonisation of staff, I would not expect the Scottish Government or the previous Executive to be involved at that level of detail in defining what the operational structure will be. There are bound to be variations in the planning for the organisational structure of the new body in relation to the tasks that it is being asked to carry out. I would expect there to be differences in that.

The encouraging message from the exhibit on page 21 is that there are expected savings of £20 million a year, which could add up to a saving of between £80 million and £100 million over the course of four or five years. That is much higher than was originally suggested.

I absolutely recognise the points that Mr Coffey makes but, nevertheless, I hope that the committee agrees that it should be helpful to management at all levels to have something like exhibit 7, in which we try to capture the range of headings under which costs and savings should be described. As you will imagine, I have looked at the issue in detail. There is nothing in the exhibit that it is unreasonable to expect a programme board to at least think about, address and put some numbers against. That comes back to the original point that the report is about learning lessons and trying to help people to do things better in future.

Audit Scotland’s wise words should be heeded by many. The good practice guide that you have produced is excellent.

Have the new bodies embraced any formal performance management standards, or do you stop at simply suggesting that they introduce performance improvement measures? As I have said several times, a number of management systems are available to the private and public sectors. Have any of the new organisations embraced the standards to meet your recommendations?

That is a difficult question to answer. In our guide, we have included important suggestions. They are what we call the audit questions that are important to ask when measuring performance. A lot of the value added is about identifying the right questions to answer at the planning stage. Our questions about measuring performance are associated with the benefits that are expected to arise from a merger, rather than the broader performance measurement and management agenda. Therefore, we cannot give a clear answer to that question at this stage.

Mr Coffey made an interesting point that I would like to follow up. At what point do IT costs stop being the costs of merger and become simply the on-going IT costs that any organisation would have? At what point do staff savings stop being merger savings and become the costs of the staff that the body has? I suppose that the question is that, in planning better for costs and savings from mergers, what is a reasonable time horizon? Is it three years or five years? What is a reasonable timeframe for estimating and tracking the costs?

I ask Dick Gill if he would like to speculate on that—it would be pulling a number out of the air, really.

It is speculation.

As one of the committee members has observed, that becomes difficult as time goes by and as the new organisation finds its feet. It is no longer a merged organisation; it is a new organisation providing important public services.

You are in the business of giving guidance for future mergers.

As I said, one body has made significant investment in new IT provision. I think that it was approximately 18 months before it could make that new contractual commitment. It is reasonable to think about costs over two to three years after the merger period, simply for completeness. Beyond that, diminishing returns would undoubtedly set in.

As the Auditor General said, the important issues are in exhibit 7 in the report. Bodies need to think through the consequences of the decision, how those will be managed and what the cost implications are. Clarity and precision in those areas is for the bodies concerned.

As members have no further comments, I thank the panel.