Public Audit and Post-legislative Scrutiny Committee

Meeting date: Thursday, September 26, 2019

Official Report 667KB pdf

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Section 23 Report

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“Scottish Public Pensions Agency: Update on management of PS Pensions project”

Agenda item 2 is on the section 23 report “Scottish Public Pensions Agency: Update on management of PS Pensions project”. I welcome to the meeting our witnesses: Penelope Cooper, chief executive, Scottish Public Pensions Agency; Helen Mackenzie, chair of the audit and risk committee, Scottish Public Pensions Agency; Lesley Fraser, interim director general for organisational development and operations, Scottish Government; Gordon Wales, chief financial officer, Scottish Government; and Colin Cook, director of digital, Scottish Government.

I believe that Penelope Cooper would like to make a brief opening statement.

Good morning. I thank members for their time today.

As chief executive of the Scottish Public Pensions Agency, I welcome Audit Scotland’s section 23 report and its four key messages. The report focuses on the period between 2013 and 2017, a time of transformational change in the agency, and the implementation of a pension software platform was a major component of that change.

I joined the agency as chief executive in July 2017. A key priority was to fully understand the pension software project’s status and direction. I recognised an immediate need to implement thorough project governance reviews that would better support our supplier.

In February 2018, I made the decision to end the contract with our supplier following the office of the chief information officer’s January 2018 technical assurance report, which rated the project as red. Within two weeks of the report being delivered, I convened extraordinary meetings of the audit and risk committee and the management advisory board to share the report’s findings and brief the Scottish ministers on the decision to close the project.

Our focus then was on putting the customers first, and that is the focus now. I reiterate that there has been and remains no risk to the pensions that are paid by the Scottish Public Pensions Agency, which continue to be paid on time and in full.

I recognise that there are key recommendations in the report that the agency and the wider Scottish Government need to take forward.

The first key message was on our business case and procurement exercise. A number of measures have been implemented to improve the agency’s approach to improving capability throughout. In particular, a new structure has been defined for the digital transformation and information technology operations, project management and procurement. That will ensure that our portfolio of digital improvement initiatives has robust governance and is continually reviewed, tested and moved forward. The agency is also changing the procurement approach to one of open and complete dialogue with vendors in order to ensure that the scope is feasible and achievable within the timescales.

The second message was on project governance and resources. The agency has implemented stronger governance across the current suite of in-flight technology projects, together with closer and more proactive engagement with Scottish Government technology and digital assurance. As part of the planned target operating model, the agency has put in place and will continue to put in place effective and consistent project management capability to ensure that governance is understood and applied in a well-planned and structured fashion. That will allow better scrutiny and challenge of our strategic suppliers.

The third message was on contract delivery and external reviews. We agree that our supplier was not able to provide a working system and did not achieve any of the project milestones. Our new procurement processes and guidelines mean that, if such a bid were received now, it would not be accepted.

The fourth message was on our failure to achieve value for money in the project. We have thoroughly reviewed our spending commitments since the closure of the project, and we are investing in current and future capability to provide greater functionality, wider automation and continuity of core services.

I also ask you to note that Capita paid £700,000 in compensation in November 2018, following the conclusion of the legal process, and the SPPA outlay under the contract was £681,000.

The figures in the 2018 report are potentially estimates and, should the committee wish it, I can provide a concise answer on our current spend and forecasts in writing.

In conclusion, as part of the lessons learned from the project, and the required transformation of the agency to better meet customer needs, a new strategic plan was created to make clear the agency’s strategic direction and ambitions for the years 2019 to 2024.

The principal focus of the strategic plan is to prevent any similar occurrence from happening again, and the successful implementation of the transformation will enable the agency to respond more effectively to changing customer requirements, to increase efficiency, to deliver best value for tax payers, and to position the agency to increase the number of members serviced.

Thank you, Ms Cooper. It is helpful for us to understand the lessons that you have learned, but we need to look back and ask questions on the report. Colin Beattie will open questioning for the committee.

I refer you to exhibit 1 in the Auditor General’s report, which details the change of leadership over the life of the project. What were the reasons behind the large number of changes in the chief executive and responsible officer during the lifetime of the project? It seems to indicate a level of instability at a senior level that is bound to have had an impact.

The report is correct and details the changes in leadership during the lifetime of the project. There was no one particular reason why there was a change in leadership. Going forward, we will ensure that roles and responsibilities are very clear. I have a succession plan in place to ensure that there will be no gaps if it happens in future. We will also allow better scrutiny of the project.

Should someone—and I would like to know who that someone is—not have looked at what was happening and seen that all those changes at a senior level were going to lead to some sort of instability or lack of continuity in the management of the project, and that maybe such changes were not a good idea? Did nobody have that wider overview?

The changes in leadership were not forecast. They were events that needed to be reacted to—and they were, as best they could be. The responsibility for the agency and for making those changes sits with the chief executive accountable officer. I was not there so I cannot explain why that happened. I can only say that I will make sure that it does not happen again on my watch.

As chief executive, it is my responsibility to ensure that I have robust and clear succession planning. I am putting in place a management team that, if anything unexpected were to happen to me—as it can—is capable of picking up and carrying on, to avoid such a situation happening again.

Ms Cooper, I want to intervene briefly here to say that we need to scrutinise the report in front of us. I appreciate that you came into post after a lot of what it outlines, but the committee has a duty to scrutinise this matter. You have had an opportunity to set out future plans and that was very welcome, but I need you to answer, to the best of your knowledge, on the detail that is included in the report. If you do not have that knowledge, that is fair enough, but it would be helpful if you could do that.

If I recall correctly, there was a period of six or seven months during which the chief executive was seconded to the Scottish Government.

That is correct.

Did that seem like a good idea? Should the chief executive not have put his hand up and said, “You know, we are in the middle of this massive project. Don’t take me away.” I presume that the chief executive had no oversight over the agency while he was seconded.

My understanding is that he remained the accountable officer and responsible for the project, and that he attended all the project boards and meetings.

However, he must have been distracted. Clearly, you are telling me that you do not have that information.

I do not have that information.

Perhaps the Scottish Government has that information.

We do not have that information. However, our understanding is the same as that of Penelope Cooper in relation to the oversight that the chief executive maintained throughout. The key point is that we absolutely recognise that it was not good practice, and that it is not what we would do for a project that was under way now.

A number of different layers of assurance would come into play from the agency, the audit committee and management board, and through the technology assurance framework, which is now mandatory for all public bodies that do that kind of project. That framework would also consider, for example, the appropriate skills for, and oversight of, such a project.

Looking back, things seem to have become rather opaque, so who do have to we speak to in order to get the retrospective oversight that we need in order to understand what happened at that point?

Perhaps I can add a bit more colour, Mr Beattie. I took on temporary responsibility for oversight of the Scottish Public Pensions Agency from January 2017, and permanent responsibility from July 2017, which was before the decision to second the then chief executive was taken. However, in the early part of 2017, it became clear that the chief executive wanted to exit the organisation. I agreed that that was a sensible route forward and put in place plans to recruit a permanent successor, which resulted in Penelope Cooper being appointed as the permanent chief executive.

Were you aware of the turnover of senior staff at that point?

I was. However, it was an active decision by the individual to leave the organisation. Clearly, if an individual wants to leave the organisation, there is very little that I can do about it; all I could do was react to that and put in place a permanent successor. If it would please the committee, we can write to it on the rationale for the chief executive going off on that secondment.

That might be interesting. However, I am rather more concerned about the whole sequence of events, how it came about, and how it impacted on the project. There does not seem to be anybody around this table who can answer that question.

It clearly had an impact. However, it is important to understand that the previous chief executive—who left in April 2015—retired. Therefore, it was not a case of the Government moving people around in order to suit its specific priorities; the two previous chief executives made active decisions to leave the organisation.

Let us leave that just now.

There are questions about the quality of reporting on the project to the project board, audit and risk committee and management advisory board. The extent to which adequate reporting was given is not clear, and there is some indication that it was poor.

That is certainly the finding of the report, and we do not work in that way now. We now have more in-depth reporting that includes full financials. We report to the MAB and the ARC, we have meetings of the senior leadership team, and the project board is comprised of a wide range of individuals—including a non-executive, external critical friend—to ensure that we have that robustness.

The subsequent level of reporting builds on the lessons that have been learned. Reporting changed on my arrival.

It is good to have that reassurance about the future. However, being an audit committee, we tend to look back at what happened. We are trying to find out why the reporting was not up to standard and why somebody was not jumping up and down saying, “We are not getting adequate information on this project.” It was a major project for the SPPA.

I am very sorry, Mr Beattie; I am not in a position to answer that question.

I ask again—who do we have to speak to in order to get that information?

Who in the Scottish Government is responsible for the SPPA? Is it one of you?

As I said earlier, I took on temporary responsibility for the line management of the chief executive of the SPPA in January 2017 and permanent responsibility from July 2017, which was the same point at which Penelope Cooper was permanently appointed.

Who in the Scottish Government was responsible before that time?

Line management of the chief executive previously lay with Alyson Stafford, who is now the director general of the Scottish exchequer. As far as the SPPA is concerned, the oversight was done by a Fraser figure. Two individuals carried out that role during the period in question, and both have left the Government.

It seems that turnover was high all round.

That certainly makes it very difficult for the audit committee to get the information that we need.

Yes.

09:15  

The questioning so far really has not elicited the sort of responses that I hoped for, so I do not see any point in continuing my questions.

I want to ask about the Fraser figure. In paragraph 4 of the background section in the report, the Auditor General says that the management advisory board

“is composed of the Accountable Officer, non-executive members and the ‘Fraser figure’ sponsor from the Scottish Government. SPPA also has an Audit and Risk Committee”.

I think that you have answered the Fraser figure question. However, I went to your website to try to find out a little bit more about the audit and risk committee and did not have much success. Unless I missed it, there was no explanation of that committee or who its members are, and there were no minutes. I then looked at the management advisory board information, which had a small section on the audit and risk committee and referred to minutes but did not attach them. The management advisory board’s minutes are for the past year only. We have to email to ask for its other minutes, which I did. Will you explain what the audit and risk committee is and what it does? I could not find that out from your website.

The audit and risk committee comprises me and two non-executive members, who have a financial services industry and governance background. I am from finance and procurement, so we have a good mix for the challenges that we are looking at.

Our agendas cover risk. We look at the risk register, key risks for the organisation, and a heat map. In every meeting, we do a deep dive, look at one particular risk and get the lead person in the SPPA to come and bring that risk to life so that we can see that it is being actively managed. We also receive the reports from internal and external auditors.

At our meeting on Monday, we looked at the report in detail and started to think about what risk management key performance indicators we need to ensure that the recommendations are followed throughout the process.

That is an overview of what we do.

There is a transparency issue because your website does not explain that. We know why you have come here. Have you looked back to see what the audit and risk committee was doing when everything was going on? It does not seem to have put its hand up or raised red flags.

Yes, we have certainly looked to address that. There is a difficult balance in governance in receiving reports from people who come to you and trying to dig underneath them to see whether what they say is actually going on. We are certainly aware of the issue of how to get under those figures.

I do not think that the Auditor General said—unless I missed it—that the audit and risk committee was active in saying that there were issues.

You are right. When the current chief executive came in, a full stop was put on that. Colleagues on the audit and risk committee possibly needed other mechanisms for raising concerns.

Without going into the names of specific individuals, is there a new audit and risk committee, or are the same people on it?

There is one person who was on the committee at the latter end of the period, but it is predominantly a new committee.

So we probably will not have the same sort of issue that we had.

I would say so.

What confuses me is that the report was published by the Auditor General in June 2019, so she and her team must have spoken to people in your agency to elicit the information that is in front of us.

Correct.

Who did she speak to?

I am sorry, but I do not have the full list. However, I know that they spoke with the outgoing chair of the ARC and the outgoing chair of the MAB. Both provided information for the report.

Sorry—you mentioned the ARC and the MAB. For the public record, can you tell me what those are?

I beg your pardon. The outgoing chair of the audit and risk committee and the outgoing chair of the management advisory board both provided information for the audit.

Those people provided information for the audit after they had left the organisation.

No—they were still incumbent at the time.

Have they gone now?

They have gone now. They finished in February this year.

Audit Scotland must have spoken to more than two people. There must be more people in your organisation who have knowledge of what has gone on.

Indeed—the Audit Scotland auditors spoke to many people, but I know that they spoke to two non-executives. I do not have the full list of everybody who was interviewed. The auditors spent quite some time in the organisation, reviewing past papers and minutes. They spoke with me, our procurement person and the previous chief executive. I am afraid that I do not have the full list—I expect that Audit Scotland would be able to tell you the names.

That is not very satisfactory. Does Bill Bowman want to continue?

I have one final comment. I know that, whenever there is a change of management, the new management always wants to look forward rather than back. Are you satisfied, from an audit committee perspective, that you know the lessons that need to be learned and what you should do now?

We are satisfied that we know the lessons. We are dividing what we will do in the future into three phased chunks. We are currently developing a business case for the new system. We have some risk KPIs around timescales for when we reach checkpoints and ensuring that those are reached, so that we flag any issues up as soon as we can.

I was on a national health service board needed to flag up some financial issues to a very senior level, even to ministers. From my experience, therefore, I am clear about what happens through the governance process if things seem to be going wrong and the chief executive’s response through channels is not successful. I have the experience to raise matters up the tree if that needs to be done.

However, our focus is on early intervention. We are looking at KPIs that would tell us early on if things are starting to go wrong. The “Amber/Green” designation in the Audit Scotland report would start to ring bells for us immediately, and we would talk to Penelope Cooper about that. That is what will happen in future. We have the experience to know, and to be confident enough, to keep raising issues, and there is an early warning system.

I have some questions about the software procurement for the project. Perhaps you can try your best to explain to the committee what happened. We have seen such examples on many occasions, and it is a mystery to us why nobody seems to be able to see when things are going wrong.

The Auditor General’s report highlights some of the classic failures that lead to software design failure: poor initial specification and poor procurement; a lack of skills; an inability to estimate the time that it will take to deliver the projects; and the absence of embracing accepted development methodology standards. Those things all happened in the pensions project. First, Ms Cooper, perhaps you can explain why they happened. Did the organisation lack the experience required to carry out the project? Why do you think that you now have in place the skills to deliver the project successfully the next time round?

There were several factors behind what happened. First, the agency did not have a clear strategic direction, so it was procuring without any real clarity. The report shows that the agency was not clear about what it was procuring. It was procuring under the old regime and regulations, so a business case was not required—only a procurement notice was needed. That has changed. We will produce a robust business case; indeed, we have already done so for the current project.

The skills and ability in the agency were an issue. For some people, it was the first time they had ever done something like that, and they did not have the necessary knowledge and experience. That was a risk, and it was undoubtedly a contributing factor. We now work much more closely in collaboration with central procurement.

We also work closely with digital to ensure that we have that skill and capability on tap. We have reorganised the agency. There was no experienced head of IT. I am recruiting a head of IT and will be interviewing candidates for that role tomorrow. As the Audit Scotland report clearly identifies, the competence within the organisation was lacking and we are addressing that.

The regime under which we procure has changed: we now produce a robust business case, rather than a procurement notice. We have absolute clarity about the strategy for the agency, where we are going and what we need to support it. We will work in a different way on procurement. We are carrying out an architecture review with suppliers, so that we really know what we need and what kind of procurement we need to have.

We no longer have the same time pressure. The report says that the agency was procuring against the clock. I have changed the software licence with the provider so that we do not have that ticking clock, but have a little more leeway to get it right this time.

Some of that is encouraging. It is encouraging to hear that this time round, more effective IT skills will be deployed to deliver the project. However, I remind you of what it says in the Auditor General’s report, which is that development methodologies—Prince2—were in place in the organisation to allow you to develop software in a consistent, recognised and controlled manner, but those did not seem to be adopted or understood. Can you shed any light on that? Can you assure us that that will not happen this time round?

Prince2 skills were in place in as much as people had had the training. However, there is a world of difference between having done some training and having experience. This time, we will have people who will have done the training and have the experience. When someone does something for the first time, they are learning and the people who did the work previously were learning. We are bringing in experienced people who know what they are doing because they have already done it before, successfully.

There is a role for Scottish Government officials and colleagues to answer. The Auditor General’s report says that

“SPPA informed the Scottish Government ... that it did not have the skills to further probe the tender”

and the organisation took no further action. What on earth happened there? Why was there no liaison, assistance or intervention at an early stage before the project rumbled on and the software starting failing, leading to the project being cancelled two years later? Why do we not intervene at an earlier stage to address such issues? I ask the Scottish Government officials to address that point.

The assessment and audit that the office of the chief information officer—as it was at that time—carried out raised those questions about skills. The assessment made a series of recommendations, and it was up to the organisation or agency to respond to those. We went back at a later stage and looked at the degree to which those recommendations had been dealt with, which was one of the key reasons that we moved the assessment into the red, leading to the ultimate decision to stop the process. That happened because the recommendations that were made for management action throughout the assessment process were not being taken up.

I refer you to the timeline on page 16 of the report, which says that you started to identify errors in the software in May 2016. It took a further two years before the closure announcement was made—two years, for goodness’ sake. Why did it take so long to reach that conclusion? The point that I am making is that a heck of a lot more work should have been done to specify the project properly and adequately prior to the software beginning to fail. Why did the team not have the skills to do that? My question is for the Scottish Government and the SPPA. The Scottish Government had oversight of the project and officials must have seen that the project was failing during those two years.

Audit Scotland has made that point very powerfully. I know that Penelope Cooper accepts it, as do we. The assessment process identified that weakness and made clear recommendations. The skills to help and support organisations such as SPPA are available through the digital directorate and the digital transformation and commercial services that I run. It remains the responsibility of the individual chief executive of an agency to engage with us and to purchase those services.

They are free to find other mechanisms to do so, whether that involves going directly to the private sector or employing people themselves. In those instances, we offer support, and we are currently engaged to assist in the procurement of private sector skills and in the recruitment of the individuals to work in the agency. Those lessons have been learned.

From the point of view of audit and assessment, which is an independent process, the issues were identified and the skills were available, but they were just not taken up. Ultimately, that is what led to the correct decision that Penelope Cooper took on the basis of our advice to stop the project. We could perhaps have done that earlier, and I think that that is one of the lessons that we have learned.

09:30  

I know that other colleagues want to follow up on those issues, so I will leave it there.

Colin Cook is putting the responsibility for asking the Scottish Government for help at the door of the chief executive. However, I am still confused about the leadership issue. Page 10 of the Auditor General’s report has a timeline about the changes to leadership that tells us that the previous chief executive of the Scottish Public Pensions Agency was in post for 13 years. That seems to be a sensible amount of time for someone to be in that post, given that the agency is critically important for our public sector workers. The Government appointed a new chief executive in July 2015 but, only a year later, it seconded them to the Government. Why on earth would the Government pull the chief executive of one of its critically important agencies into Government after only a year in post? That seems to be a key issue here, because, subsequent to that there was an acting chief executive, then so-and-so left and then there was another appointment and so on.

Gordon Wales, why on earth would the Government pull in the chief executive after a year in post?

We would need to write to you on that specific issue.

Why can you not tell me now?

Because I am not aware of the personal circumstances surrounding the previous chief executive and his role, and how that decision was taken.

Personal circumstances might mean that they were off ill. However, clearly, this person was working and the Government decided that their skills were better used in Government than in the agency.

However, as Penelope Cooper has said, the chief executive remained in an oversight role, so they were still an active chief executive and the accountable officer for the organisation at the time.

Oh, so they were doing two jobs.

There remained that oversight role.

So, you were expecting them to oversee the agency and do an additional job in the Government. That clearly did not work, because the situation ended up in this mess.

It is clearly a contributing factor, but I cannot comment on the exact circumstances.

Is that a good enough answer for this committee when we are looking at a report that speaks of such dire consequences?

No. I accept that it would be helpful for you to have additional information, and we would be happy to write to you to set out those circumstances.

I am not actually interested in the personal circumstances of the individual; I am interested in the strategic decision of Government to appoint a chief executive to a key agency and then pull them into another job or, effectively, give them two jobs. That was clearly the Government’s decision, because it was a secondment to the Government.

I accept that.

And the Government is also responsible for making sure that the agency works properly, so why take away its leader?

I accept that point. I think that we would need to write to you with details of the circumstances.

Lesley Fraser, do you want to say something?

That chief executive subsequently left the Government and neither Gordon Wales nor I know the circumstances surrounding that individual’s career decisions. We can happily look into that and report back to the committee. We do not have that information just now.

Okay. Thank you.

I will stay on this area. Why did the SPPA decide to award the contract to Capita, given that the advice from the legal department in the Government was that more questions should be asked and that the agency should have another look because the price was “abnormally low”?

I am basing my answer on the same information that Audit Scotland had—that is, on the minutes and notes. The agency went back and asked Capita questions, as it was advised to do. It asked whether that was the price that Capita meant. Capital said that it was sure that it could provide the service at that cost, and that that sum allowed for its margin. It said that its intention was to use the arrangement as something of a loss leader in order to gain a hold in the Scottish pensions market.

That answer satisfied the agency. It did not have the skills to prepare the additional questions that it should have taken back to Capita, and it did not have the time, because there was time pressure. Under the procurement guidelines that pertained at the time, it had to go with the cheapest bid—that was the driver. Capita was the cheapest—it was second on quality—and it went with that bid. As I said in my statement, that bid would not go ahead now—we would not accept that bid. However, under the circumstances at the time, the agency did.

Thank you for that answer. I want to consider the Government’s role in this. There was a bid, which was classed as being of “abnormally low cost.” The SPPA came to the Government and said, “Here is what we have got”, and Government legal told it to go back and ask more questions. Crucially, the SPPA came back and said, “We do not have the skill set to do this; we do not know the questions to ask.” I am paraphrasing, but that is how I understand it. At that point, the Government appears to have said, “Crack on”. Is that a fair analysis?

That is now how I would interpret it. The SPPA sought and was given advice. It then used that advice to go back and challenge. However, with the benefit of hindsight, it clearly did not do that to the level that would have illustrated the issues that subsequently came to be fatal flaws in the project.

Forgive me, but I respectfully put it to you that you missed out a stage. The SPPA did come to the Government, and legal did tell it to go back and ask more questions. However, the SPPA came back and said that it did not have the skill set to do that. Am I not correct?

I cannot give you the exact timing—whether it was with hindsight or at the time—of when the SPPA recognised that it did not have sufficient skills.

According to the Auditor General’s report, it was at the time. Paragraph 15 states:

“SPPA informed the Scottish Government Legal Department that it did not have the skills to further probe the tender. SPPA took no further action and accepted the bid.”

After the SPPA told the Government that it did not have the skills to interrogate the bid, the Government dropped out, did it not?

That is not the approach that would be taken now.

I accept that, but it was the approach that was taken at the time.

It was the approach that was taken at the time, because different standards were being relied on at that point. There is now a mandatory process of technological assurance, which goes through all those different elements and assures that the relevant steps have been taken for a project of that scale. That is exactly the process that SPPA is undertaking with the appropriate colleagues in the Government.

My concern is that, as Penelope Cooper said in response to Willie Coffey—again, I am paraphrasing—there was a major dearth of skills in the SPPA to do such a project at that time. It needed support, and it told the Government that it needed support.

The SPPA looks after the pensions of the staff of our NHS, our education sector and our police and fire service. That body told the Government that it did not have the skills to do what it was about to do, and on the basis of that report, the Government washed its hands of it. It majorly took its eye off the ball and adopted a laissez-faire attitude to what the SPPA was telling it. Is that not a fair analysis?

That is not the analysis that I would put on it. At the time, very different standards underpinned the process. The critical point is that pensions continued to be paid on time and in full, and that there was no threat to the public service. The question is about the most effective way to bring in new technology to improve the service that is provided to pensioners and citizens in Scotland.

We, along with the SPPA, firmly believe that there are lessons to be learned. We agree with the key messages in the Audit Scotland report, and that underpinned the change in our approach that was introduced in 2017. The standards and the approach in 2014 to 2015 were different, and there are absolutely lessons to be learned from that.

I want to go back to the change of chief executive. Exhibit 1 in the Auditor General’s report makes it clear that, over the two-year period between April 2015 and July 2017, there were at least six chief executives, including interim and acting chief executives. The chief executive who left in April 2015 had been in post for 13 years. When he left, an interim chief executive was appointed and the new chief executive did not start until July 2015. If somebody was retiring, I presume that everybody knew well in advance when that was going to happen, so why was there a need to appoint an interim chief executive? Surely there was plenty of time to appoint a new chief executive. In fact, I would have thought that would be a rollover period—perhaps of a month or so—when the two chief executives doubled up. Why was an interim chief executive appointed?

I cannot explain why that happened. I agree entirely that we should have robust succession planning, and I can only say that, in future, that is exactly what will happen. For example—

Sorry, Ms Cooper, but, to be fair, that is more a question for the Government. We appreciate that you cannot answer it. Can someone from the Government answer it, please?

I cannot set out the particular circumstances that led to that arrangement. There may have been good skills at the next level down, which meant that an interim arrangement was appropriate. However, I do not have that specific information here.

Okay—let us move on to my next question. The interim chief executive served from April 2015 to July 2015, when a new chief executive was appointed. That chief executive was later seconded to the Government. What was the sequence? Was he offered the secondment and then he decided to leave the agency, or did he decide to leave the agency and was then seconded to the Government?

The decision to leave the Government was taken after the secondment was in place.

No—I mean the decision to leave the agency. I want to know at what point he was seconded. Was the sequence that somebody from the Government said, “We want you in the Scottish Government,” and then he decided to do that and that he wanted to leave the agency, or was it the other way round?

That individual’s decision to leave the agency was not particularly a result of the circumstances related to the secondment; it was a decision to leave the agency and the Government in its entirety—in effect, it was a decision to resign as the chief executive. In other words, the individual did not want to go back and fill that post as chief executive on a permanent and continuing basis.

What came first? That is my question. Was it the decision to second him, or his indication that he wanted to leave the agency?

His indication that he wanted to leave the agency was significantly after the point at which he was seconded. That conversation took place with me in the early part of 2017.

So he was seconded to the Government before he indicated that he wanted to leave the agency.

Yes—that is my understanding.

Why was he seconded?

As I said, I do not understand the particular detailed circumstances surrounding that.

What job was he seconded to?

He was looking at corporate and financial shared services for the Government.

How many hours a week was he to work on the secondment?

Sorry, but I do not have that detail with me.

How many hours a week was he allocated to oversee his job?

Again, I do not have that level of detail with me.

Was he getting two salaries?

No.

He was getting one salary. Was he being paid by the Government or by the agency?

As I understand it, he was still being paid by the agency.

Why is it that you know details of the pay but nothing else?

That is my understanding. I am perfectly happy to obtain the details and write to the committee with the exact circumstances.

With all due respect, you should have come here this morning with the answers to those questions, because it is a fairly big issue in the report. You need to do your homework better next time you appear in front of a committee.

There was then an acting chief executive, who I take it was full time.

That is correct.

Was that an external appointment.

No, it was an internal appointment.

Was it advertised?

No. That person had been acting in a previous role and was the de facto deputy chief executive, so they were the right person to take on that role on a temporary basis.

They lasted from October 2016 to February 2017, when they left.

09:45  

No, it was the same person. It was, effectively, just a change in title. There was continuity in terms of that person through that period.

Was the chief executive who was appointed in March 2017 another person? Was that somebody completely new?

The person who was appointed as the permanent chief executive at that time was Penelope Cooper, but she took up the post in July.

Aye, so there was a change of personnel again—

Yes, and if we refer back—

Sorry, but what happened to the guy who was the acting chief executive?

He returned to normal duties in the agency.

I take it that the job of the next full-time permanent chief executive was advertised.

Yes. I took the decision that, given the circumstances surrounding the agency’s project over the previous years and the challenges that it faced, it was important to have an external appointment. Therefore, rather than carrying out an exercise solely within the civil service, the post was advertised externally, too, because I wanted to make sure that we brought in the most appropriate skill set for the challenges ahead. The person who was chosen through that exercise as the most appropriate person to be appointed was Penelope Cooper.

Just to be clear, the acting chief executive who was appointed in October 2016 was the same person as the interim chief executive who was appointed in April 2017.

That is my understanding, yes.

Why was there a change of status from “acting” to “interim” after they had been doing the job all that time?

That was really because of the circumstances around the chief executive leaving. The person had been in an acting role but the previous chief executive was still the permanent chief executive. When he left, it was appropriate to appoint the individual who was carrying out that role as the interim chief executive rather than as the acting chief executive. The defining moment is the departure of the permanent chief executive.

Which was in February 2017.

Correct. That individual took a decision to leave at relatively short notice. There was then a period during which I had to carry out the recruitment exercise and put someone in place. Because Penelope Cooper came from the financial services industry, there was quite a long lead time associated with her departure.

During the period when there was an acting chief executive and the previous chief executive—who was seconded to the Government—had an oversight function, what was the division of responsibility between the acting chief executive and the chief executive who was doing two jobs?

My understanding, from reading the arrangements at the time, is that the acting chief executive was, effectively, taking day-to-day decisions but that the permanent chief executive still had an oversight role and, as Penelope Cooper said earlier, still attended major committees, management boards and so on.

This is utterly shambolic. If anybody allowed this to happen in the private sector, they would be sacked. There is no explanation for any of this. We need a detailed account of the whole situation not only in relation to the secondment, but in relation to why, when someone retires after 13 years, their job is not advertised well in advance, so that there is at least a transitional period of at least a month or so before they retire, as we would expect there to be in an agency of this kind.

We need an extremely detailed account of the sorry saga that is set out in exhibit 1—we need timelines, job descriptions, divisions of responsibility and so on. We need to know who in the civil service was responsible for this. Did this go to a minister to be approved? Who approved this at each stage? Why did they approve it? We need chapter and verse, because all of us—including you—are agreed that this was a major contributing factor to what ended up as a total shambles that has done enormous damage to the reputation of the Government and the agency’s ability to manage IT contracts.

On the back of that, I would like to ask about sponsorship—that is a key theme in all the audit reports that we consider. Who was the sponsoring person or department in the Scottish Government for the SPPA?

Sponsor arrangements are normally reserved for non-departmental public bodies. There tends to be a Fraser figure relationship with agencies.

What does that mean, Mr Wales?

A Fraser figure is a consequence of a report by Sir Angus Fraser, back in 1991, about the Government having an individual. Unlike a non-departmental public body, which has a more arm’s-length relationship with the Scottish Government, an executive agency is, of course, part of the core Scottish Government. Formal sponsorship arrangements are put in place with a non-departmental public body. A Fraser figure relationship is put in place with an agency, because the proximity is much greater.

Who was the Fraser figure throughout the period?

As I said earlier, there was a difference between the line manager and the Fraser figure. Two individuals previously carried out the Fraser figure role: Alistair Brown and Eleanor Ryan, both of whom have left the Government.

When I took on temporary arrangements for the Scottish Public Pensions Agency, in January 2017, I looked at the oversight arrangements that were in place, and, when I took on permanent responsibility for the line management of the chief executive, from July 2017, I decided that it was appropriate that the line management and Fraser figure roles should be the same. From that point onwards, I have therefore been both the line manager to and the Fraser figure for the agency, so there is no separation of those roles any longer. I now hold Penelope Cooper, as the accountable officer, accountable for the delivery of the agency’s performance and, as the Fraser figure, I attend meetings of the management board and the audit and risk committee, for example. Therefore, I have a different level of oversight.

How much of that went for ministerial approval? I would be disappointed if none of it was given ministerial approval. I was disappointed by some of the decisions that were given approval, but we need to know at what level all of this was signed off at every stage.

On the chief executive who was seconded, had two jobs and eventually resigned, did he get a severance package?

I am sorry, Mr Neil, but I must stop you. Throughout this session, the assumption that all the predecessors were men has been bugging me. You may be right, but that cannot be accepted as an assumption.

The reason why I said that is that I think they were men.

You may be right, but it is an assumption. Maybe Ms Cooper can briefly clarify that point.

The interim chief executive from April 2015 was, in fact, a woman.

I will allow Mr Neil to continue.

When the person—he or she—who was seconded to the Scottish Government while they retained the role of chief executive eventually left the agency, were they given a severance package?

It was a resignation, so no additional payments were made over and above what someone would normally receive if they resigned from an organisation.

Was that payment based on the terms and conditions of their job with the agency rather than their job with the Government?

Indeed. Absolutely.

I want to clarify something that Gordon Wales said about how the individual was paid when they were the chief executive and were seconded to the Government. I think that he said that they were not paid for two different jobs and that they were still paid by the Scottish Public Pensions Agency rather than by the Scottish Government.

That is my understanding, but I am very happy to clarify that when I write to the committee with all the other details.

In effect, the Scottish Government had the Scottish Public Pensions Agency paying for its chief executive, but it took the person away to do a job for free.

Yes. That is one way of looking at it.

You are, in effect, saying that we took away an organisation’s leader to do another job and did not let them do their full-time leadership job in the agency. What were they seconded for?

As I said, my understanding is that the role was to perform an oversight and a study of financial shared services in the core Scottish Government.

They were not seconded to something that was uniquely to do with the operation of the agency, even in respect of strategic long-term planning.

There was a link, because financial shared services cover a significant breadth of the Government’s activities—everything from paying suppliers on a day-to-day basis for the goods and services that they provide to what the Scottish Public Pensions Agency does, which is to pay high-volume, customer-focused pension payments. They also cover everything in between. Therefore, there was a direct link with the Scottish Public Pensions Agency’s work.

I imagine that the chief executive of the pensions agency is a well-paid job.

The Scottish Public Pensions Agency role sits at the level of deputy director 1A in the civil service grading.

What is the salary for that band?

I do not have the exact figures.

What is it roughly?

It is roughly between £70,000 and £100,000—but that is a very rough estimate.

The SPPA was, in effect, paying a chief executive £70,000 to £100,000 not to do their job full time so that they could go and work for free for the Scottish Government.

As I have said, that is one way that you could look at it, but there was certainly benefit from that individual bringing the experience that they had gained in previous roles to the examination of wider shared services arrangements within the Government.

Alex Neil and Jenny Marra have covered the chief executive side. On the responsible officer side, there was obviously quite a high volume of change, particularly from 2016 to 2018. Senior responsible officer 3 was there only for about three months, and the post holder then changed. The high turnover of senior responsibility officers is a cause of concern. Could you say a bit about why that happened?

I do not think that I am able to comment on that issue specifically, but perhaps Penelope Cooper has some information.

I can comment on the last point. She went off sick. She was the responsible officer when I arrived, and she went off sick in July.

Is there a connection between the changeover of the senior responsible officers and the not-smooth path—if I can put it that way—of the acting interim and permanent chief executives?

I do not think so.

Were we just unlucky to have a rocky road on both sides?

I am not aware of a connection between the two things.

Alex Neil has asked for some written communication about the ministerial oversight. Can you set that out for us a wee bit just now, Gordon? During the period that we are discussing, what was the level of engagement with ministers—in particular, during the high changeover period of mid-2016 to 2018? What was the level of oversight, discussion and interaction with Scottish ministers?

I do not have the detail of every interaction, but ministers were clearly being informed of the key events that were happening in the agency—in particular, when milestones were not being met. Ministers were being advised of that.

Were they being advised purely for information, or were they actively part of the decision-making process?

Ministers were clearly given the opportunity to scrutinise further, to ask questions and so on, but day-to-day decision making rests with the chief executive of the organisation.

I wish to follow up on something that Colin Cook said, just to make sure that I understood it. As a result of a series of IT failures, structures have been put in place to provide support to people within the various bodies, so that they have a resource that they can come to, where they can get help and assistance. The SPPA did not do that. If I recall correctly, Colin Cook said that people within Government and the different bodies had a choice about whether to make use of that capability or to go off and do their own thing. Does that make sense?

Let me be clear about this: they have no choice about the audit and assessment process. All digital and IT projects, regardless of their size, have to be registered with the digital assurance team, and they will be subject to a check if they meet the qualifying thresholds. We have talked about that in the past. For a major project, the threshold is £5 million of lifetime value. That is a no-choice issue.

The skills that people require to run their agency is a matter for the chief executive. Those skills can be provided with the support of a shared service that I operate—the digital transformation service—which provides people such as technical architects, service designers and software engineers. They can also be provided directly through the market, if those responsible in the agencies concerned choose to go out for external support.

I have a function that can help bodies to procure the right service at the right cost. Alternatively, they might decide that the issue is of sufficient importance that they wish to recruit a team internally, and I also have a service that can help them to identify people with the right skills.

10:00  

The latter two decisions are a matter of management judgment, and they therefore rest with the chief executive or the appropriate person in the agency. As I said, Penelope Cooper has decided to do both of those things. She has decided to bring someone who has IT skills into the IT team, and she has engaged us to find that person. In addition, she is procuring extra support from the marketplace and has engaged with us to support that process.

Does that not still leave a potential gap? If the chief executive of whichever function or agency decides that they can do the job in-house or go out to the market, they can do so without having to refer to you.

Yes—that is correct.

My question also touches on procurement. Given the amount of money that the Scottish Government and all its agencies across the board now spend, in capital and revenue, on IT—we are talking about billions of pounds every year—why does every agency still do its own thing and reinvent the wheel? Why is there no bulk purchasing for capital purchases, in particular? In terms of value for money, it seems to be an antiquated way of procuring services. Am I right or wrong?

We have increasingly recognised that there are better opportunities and better ways of co-ordinating the procurement of IT services across the piece. For example, in the current spending review, we are ensuring that we have forward plans from every part of the Scottish Government, so that we can make those judgments and make recommendations to ministers if we believe that there is the potential for duplication. I accept that improvements can be made if we change the way in which we procure IT services.

I will take the example of the national health service. My health board—NHS Lanarkshire—spends £30 million a year on IT services. Some of that spend is capital and some is revenue. If we multiply that amount across the health service, we see that the NHS probably spends not far short of £0.75 billion—or something of that order, between capital and revenue—on IT services. However, every health board—there are 23 of them—and now every integration joint board is doing its own thing. That is absurd. The waste of money must be enormous. When are you going to get a grip?

I am doing so, and I know that my colleagues in the health service take the same view. They have undertaken an exercise similar to mine to understand what is being spent where, and they have the capability to support that. I know that the health service is addressing that issue.

There are also examples—they are increasingly important—of our building common components and platforms. That will mean that organisations do not have to procure, because that has been done once on behalf of the entire Scottish public sector or, in some cases, by the Scottish Government.

Is participation in that arrangement voluntary? Going by your last reply to Colin Beattie, is it not time for a bit of a dirigiste regime? It is public money.

We are about to deal with the Scottish Prison Service, which claims that its problems have come about because it is underfunded. The police service says that it is underfunded, as does education. Everybody and their granny says that they are underfunded, yet we appear to be wasting millions of pounds—if not hundreds of millions, potentially—because of the way in which we are procuring IT systems. IT is a particular issue. Is it not time for a bit of energy and for a foot to be put on the accelerator with regard to some of this stuff?

There is a lot of energy on this particular accelerator. The audit and assessment process—the digital first service standard review process—will identify where people are deciding not to use the common processes and components that are available. There is a very good argument that we need to find a different mechanism for doing that and look for some form of central spend controls. That is a matter for ministers and concerns the way in which we run the organisation, and it will be considered as we go into the next spending round. As I said, we are collecting all that information and looking forward so that we can make those judgments and make some recommendations.

Thank you. I think that Penelope Cooper would like to add something. I ask her to be brief.

I just want to give Alex Neil some comfort. The pension systems are quite detailed and bespoke. I am co-operating on procurement as part of a group within a group of public sector pension providers. As you will be aware, there have been many changes in the pension legislation, and they affect the whole industry. We are working with other public agencies that deliver pensions to do some common procurement. I take your point fully—we are all looking for the same thing, so let us work together. On the pension side, that is exactly what we are doing. I hope that that gives you some comfort, Mr Neil.

There is some good news there.

That concludes the evidence session. I have to say that it has not been the most satisfactory session. I understand that that is due to personnel changes, but that has not made our job any easier. The committee will consider carefully its next steps on the report. I thank the witnesses for their attendance and evidence this morning.

10:05 Meeting suspended.  

10:09 On resuming—