Contact: Jeff Pattison, ext 7321, or email: [email protected]

1 Summary

1.1 As a result of a complaint forwarded to the County Council by the Audit Commission, the County Treasurer's Internal Audit have undertaken a preliminary investigation into the initial letting of consultancy contracts by IT Services in respect of preparatory work for the Contact Centre. As a result of Internal Audit's investigation it appears likely that significant contracts have been entered into with external consultants which have failed to comply, either with the County Council's Contract Standing Orders, or indeed, the European Union's Procurement Rules. This report, therefore, identifies the action that has already been taken to remedy the situation in respect of future activity, and also what further action is required to be undertaken. It needs to be borne in mind however, that this isolated incident is in the context of the County Council having effective commissioning arrangements in place to procure contracts, including consultancy contracts in excess of £100m per annum.

Recommendations

a) That the Cabinet notes the contents of the report, and approves the action taken to regularise for the future, the letting of the consultancy contracts for the Contact Centre.

b) That a full investigation be undertaken into the circumstances surrounding the letting of the consultancy contracts referred to in this report, by the Chief Internal Auditor and the Head of the Legal Practice with a final joint report being submitted to the Cabinet as soon as possible.

2 Background

2.1 In April 2006 the Audit Commission received a complaint relating to the appointment of an external consultant as Programme Manager for the Contact Centre Programme. The substance of the allegation was that the appointment of the Consultant had never been put up for tender by the Council.

2.2 The complaint was discussed between the Audit Commission and the Chief Internal Auditor, and was passed to the County Council's Internal Audit Services for investigation.

2.3 Although a final Internal Audit report has not yet been produced, a recent draft has been disclosed. This indicates that the Consultant in respect of which the complaint was made was initially appointed on a series of short-term contracts following a low-level competition process. However, following those initial short-term contracts with the Consultant, these were then subsequently extended without further competition and in view of the amounts involved without compliance with the Council's Contract Standing Orders, or the European Union (EU) Procurement Rules. The central issue appears to be the procedure followed regarding the appointment process rather than the quality of work actually undertaken.

2.4 It appears that legal advice was given in the early stages of this process about how these consultancy arrangements could be undertaken in compliance with both Contract Standing Orders and EU Procurement Rules, but it seems that this advice was not subsequently followed.

2.5 In undertaking this investigation into the initial complaint, Internal Audit also identified a series of additional consultancy contracts which had been entered into in support of the Contact Centre Programme. It appears likely that in the context of EU Procurement Rules, all of these consultancy arrangements should have been aggregated in value for the purposes of assessing whether or not they also were subject to EU tendering rules. It appears that none of these additional consultancy contracts, either individually or collectively, followed either the Council's Contracts Standing Orders or EU Procurement Rules.

2.6 On the information available to Internal Audit in carrying out this investigation, it appeared that the appointment of consultants did not comply with the Council's Standing Orders on Contracts or EU Procurement Rules. If this is the case then it is a serious breach and if the contracts have been let without complying with EU rules, amounts to unlawful action on the part of the County Council. As members will be aware, failure to comply with EU Procurement Rules does, as a consequence, run the risk of legal action either from aggrieved or potential bidders for the particular contract, or indeed by the European Commission itself.

2.7 In addition to the legal position, there is also the question as to whether or not value for money has been achieved through these consultancy contracts. Although there was a limited tendering exercise at the outset for the primary consultant about whom the complaint was submitted, it simply involved the interviewing of that consultant and one other. Although further analysis may indicate that the rates charged reflect market rates, it is not possible to say that these contracts or the process entered into prior to them being let actually does demonstrate value for money.

2.8 The position with regard to the letting of these consultancy contracts was brought to the attention of the County Treasurer in February when the Head of IT Services requested an extension. The County Treasurer was concerned that the existing contract for the consultant appointed as the project manager for the contact centre project appeared to exceed the European procurement rules and would need to be re-tendered. He refused the extension and asked for the position to be investigated and requested that internal audit should follow up and report. The County Treasurer as Section 151 officer then met with the Monitoring Officer, Chief Internal Auditor and Head of IT Services to determine the action required on 7 March 2007, The existing contracts were therefore terminated and relet under the Manpower framework contract. The Manpower contract is a framework contract previously entered into after being subjected to a full EU compliant tendering regime. Therefore the apparent unlawfulness of the contract arrangement has been remedied at least for the future. However it is not possible for the Council to remedy the previous unlawful letting of the contract. There remains the expenditure of money under the previously unlawful contract and it is feasible for the Council to retrospectively approve that expenditure to date. The amount committed until the transfer of the contracts to Manpower is within the budget approved for Hants Direct. These costs include the project manager and four further project consultants who were employed by the Project Board to provide the appropriate experience and expertise towards setting up the contact centre project for the Council. It is suggested that a decision on this past expenditure be deferred until after the Cabinet has considered the detailed report into the investigations of this matter.

2.9 There remains the very important issue of how this situation arose and what can be learned from it, especially where those lessons are of a systemic nature. It is fair to say that the Internal Audit investigation being predicated on the initial complaint received by the Audit Commission, was not a detailed one in respect of all the matters which have now arisen. It is recommended that a full investigation be now undertaken in respect of all of the circumstances arising.

2.10 As the original complaint was received by the Audit Commission, the current position has been discussed with the Audit Commission's Relationship Manager. The opportunity was also taken to discuss whether or not the more full investigation now recommended should be undertaken externally or internally. The Audit Commission were content that this was an investigation which could be appropriately undertaken internally. It is therefore recommended that such an investigation be undertaken as soon as possible, and that it be handled by the Chief Internal Auditor and by the Head of the Legal Practice. The Audit Commission were content with this arrangement.

2.11 It is suggested that although an investigation into all circumstances relating to the letting of the consultancy contracts for the Contact Centre be undertaken, it should concentrate on the following aspects:-

· What advice including legal and procurement advice was sought and obtained by IT Services leading up to and during the letting of these consultancy contracts, was such advice followed and if not, why not.

· Why normal procurement procedures (including EU and Contracts Standing Orders) appear not to have been followed.

· Does this apparent failure to follow appropriate procurement procedures result from any defects in the Council's current practices and procedures, and if so, what improvements are required to be made.

· Are there any cultural or attitudinal issues that need to be addressed.

· Are there any apparent failures in the control mechanisms that exist in the current procurement regime, and if so, what are they and what recommendations are made for improvement.

· What simply was the root cause of this apparent failure to comply with Contracts Standing Orders and EU Procurement Rules.

· An assessment of value for money achieved under these contracts be given.

· Does any action, inaction or failure on the part of any staff justify disciplinary proceedings.

2.12 It is obviously important that this investigation should take place within as short a timescale as possible. It is therefore recommended that the investigation should be completed within three months, and a final report prepared thereafter for the Cabinet's attention and any further action that may be required.

Section 100D - Local Government Act 1972 - Background Papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published Works

2. Documents which disclose exempt or confidential information as defined in the Act.

None.