Management of Bus Contracts: Following up the investigations of the Comptroller and Auditor General

Public Accounts Committee

Management of Bus Contracts: Following up the investigations of the Comptroller and Auditor General.

Presented to the States on 2nd August 2012.

P.A.C. 2/2012

Contents

1. TERMS OF REFERENCE ............................................................................................. 4
2. THE REPORT BY THE COMPTROLLER AND AUDITOR GENERAL ......................... 4
3. TRANSPORT AND TECHNICAL SERVICES ............................................................... 5
4. CORPORATE AIMS ..................................................................................................... 7
5. CONCLUSIONS ............................................................................................................ 9
6. COMMITTEE MEMBERSHIP ........................................................................................ 9
7. ROLE OF THE PUBLIC ACCOUNTS COMMITTEE ................................................... 10 APPENDIX 1 ...................................................................................................................... 11 APPENDIX 2 ...................................................................................................................... 21

1. Terms of Reference

1.1. The terms of reference for this review were;

1. To establish what action has been taken to ensure value for money in relation to the recommendations of the Comptroller and Auditor General in his report "Management of the Bus Contracts".
2. To report findings from this review to the States.

2. The Report by the Comptroller and Auditor General

1. In July 2011, the Comptroller and Auditor General completed a report on the Management of Bus Contracts. A number of recommendations were made to allow informed decisions to take place regarding the design of the new contracts.
2. PAC recognises its responsibility in following up the Comptroller and Auditor General recommendations. However, we also recognise the sensitive timing of these comments due to the new contract being under development.
3. The report of Management of Bus Contracts has therefore been followed up by way of correspondence with the Transport and Technical Services and the Central Procurement Team.
4. It was fundamental that lessons were not only learnt from the last contract, but in order to move forward and ensure the success of the new Bus Contract and indeed any future contracts entered into by the States of Jersey, the lessons were acted upon. This has become all the more relevant in the light of the aims of the Comprehensive Spending Review, which is attempting to save £65 million from the Islands spending.
5. The Committee is impressed with the way in which Transport and Technical Services have taken on board the Comptroller and Auditor General's recommendations whole heartedly and notes that the Transport and Technical Services web site states:

"Transport and Technical Services (TTS) believes an audit into the current bus contract by the Comptroller and Auditor General (CAG) will be a useful reference document for the new bus contract which is currently starting its tendering process."

6. The Committee recognises that this can only positively assist with the tendering of the new contract.

3. Transport and Technical Services

1. TTS identified that the Sustainable Transport Policy (STP) has now been agreed by the States and they have made it quite clear that this policy forms the basis within the new contract. This will assist in the aligning of the terms of the contract with the more stable corporate aims of the States. It will also provide an established and agreed platform for any movement in those aims to be launched from. This should prevent any surprises in changes of corporate direction on the part of the contractor or the States and provide a robust position for measurements to be taken from.
2. A concern that does arise from this is whether the objectives of the STP will in fact be measured and therefore able to be relied upon for performance. The STP aims to meet objectives within the Strategic Plan 2009-2014 by striving to meet the vision:

"To provide travel choices for Jersey that reduce reliance on the car, provide access for all and protect our quality of life."

3. Measurement systems for this, relating to bus usage, include increases in both peak hour bus usage and school bus usage by 100% by 2015.
4. Will TTS find themselves searching for sufficient manpower to provide the measurements required for monitoring success in these areas?
5. The Department have accepted that performance management is crucial to the successful private-public partnership of the bus contract. It has also accepted the recommendation of the Comptroller and Auditor General, that performance standards need to be measured on outputs rather than inputs. In fact, it has gone further, in the department's research into current best practice, it has chosen to use a system of performance management that relates to both performance input and performance output.

6. One of the failures of the previous contract was performance management. Real- time Passenger Information System (RTPI) was used but found to be unsuitable. Not only was the basis of the measuring systems questionable because it was unsuited to such a small operation as Jersey but the manpower to undertake the process was not available, the system was too labour intensive and the cost of enforcement outweighed the potential gains. The Committee accepts that all may have seemed appropriate when the last bus contract was signed and that technology and understanding of best practice have both moved on since the inception of that contract.
7. The Committee is advised that the RTPI is now significantly advanced and the problems of earlier systems have been resolved. It now has the capability, in a small jurisdiction like Jersey, to allow information sharing in the tracking and recording of service delivery as an independent system that both parties have access to and can rely on. This may be an opportunity for the Department to be completely transparent by making the RTPI figures public, perhaps on a quarterly basis.
8. Other data can be obtained to support this system by customer satisfaction surveys and mystery shopper' visits. In 2012, this represents a modern industry standard and will supply a functional and robust measuring system for performance management. If the systems meet the stated expectations, the concerns of the Committee over the measurements may be shown to be without substance.
9. The Committee also held concerns relating to implementation. Although there was a penalty scheme built into the last contract, because the management of performance and measuring systems failed, nothing was done by way of implementation of the penalties due to the States. Estimates of the value of the penalties vary from an estimate by TTS of £89,200 per annum to a calculation by Price waterhouse Coopers of £748,951. The Comptroller and Auditor General makes it clear that neither of these figures can be considered robust measurements, however the States could have made some return and even the lower figure has been reasonably considered substantial' by some. TTS have given an assurance that an appropriate penalty system, which can be monitored, agreed by both parties and implemented, will form part of the new contract.

10. So the difficulty appears to be managing the contract once operational. A senior staff member should be allocated the responsibility for such contracts once active. Failures, such as occurred previously, cannot be allowed to re-occur.
11. The Comptroller and Auditor General also discussed revenue sharing within his report. It can only be by the above areas which failed in the previous arrangement, being clearly defined, understood and agreed by both parties, that the provision of a bus service for Jersey will meet the expectations of the contractor, States of Jersey and the customers it serves. It is reasonable to expect a private contractor to return a profit. The contract should allow for that and revenue sharing is an intrinsic area of the covenant between the parties. Incentives to improve performance relating to revenue sharing must be implemented, whether to deal with positive or negative provision of service.
12. We have attached, in Appendix 1, the response received from the department so that the Public and other States Members are able to identify how TTS are currently carrying out the recommendations.

4. Corporate Aims

1. The Comptroller and Auditor General also discussed areas of concern throughout the whole of the States in relation to contracts;

"incentive and penalty schemes are a necessary part of any out-sourcing arrangement. It is not sufficient merely to specify such schemes in contracts, they must also be implemented.

The States should not become involved in such major outsourcing contracts unless incentive and penalty schemes are implemented. This in turn will

require the States to ensure that Departments create teams with the skills necessary to manage relationships with outsourcing contractors."

2. Questions relating to these areas were put to the Central Procurement team for advice to the Committee. The response shows that Central Procurement are aware of the issues raised and have an action plan working towards best practice in some areas. See Appendix 2 for the response.
3. The Comptroller and Auditor General raised concerns over the skill sets required to deal with complex contracts throughout the States:

"This in turn will require the States to ensure that Departments create teams with the skills necessary to manage relationships with outsourcing contractors."[1]

4. It is clear to the Committee that work is being undertaken to meet the demands of professional contracting within the States of Jersey. Recent amendments to Financial Direction 5.1 ensures contract monitoring meets standards with further reviews being undertaken into appropriate monitoring controls, particularly where contracts have complicated income-sharing clauses.
5. The Committee notes that Central Procurement have taken two years to arrive at where they are today. Progress appears to be very slow and in view of the statements made at inception that this unit would save £6 million, there may be a case for the Committee to examine the actual value for money of the unit at some time in the future.

5. Conclusions

1. The Committee will not involve itself in the work being done on the new contract. The PAC Chairman has liaised with the Chairman of the Environment Scrutiny Panel. Consideration of what needs to be done in that area is for that Panel.
2. The Committee has expressed some minor reservations but applauds the commitment shown by TTS to meet the recommendations of the Comptroller and Auditor General contained within his report "Management of the Bus Contracts".

6. Committee Membership

The membership of the Public Accounts Committee during the review comprised:

States Members

Deputy Tracey Vallois (Chairman) Senator Sarah Ferguson

Deputy Shona Pitman

Deputy Richard Rondel

Independent Members

Mr A. Fearn

Mr S. Haigh

Mr C. Evans

Officer Support: Mick Robbins

7. Role of the Public Accounts Committee

The primary function of the Public Accounts Committee is defined in Standing Orders[2] to review reports by the Comptroller and Auditor General and to report to the States upon any significant issues arising from those reports regarding :-

• The audit of the Annual Accounts of the States of Jersey
• Investigations into the economy, efficiency and effectiveness achieved in the use of resources by the States, States funded bodies, independently audited States bodies (apart from those that are companies owned and controlled by the States), and States aided independent bodies
• The adequacy of corporate governance arrangements within the States, States funded bodies, independently audited States bodies, and States aided independent bodies,
• and to assess whether public funds have been applied for the purpose intended and whether extravagance and waste are being eradicated and sound financial practices applied throughout the administration of the States.

The Public Accounts Committee may also examine issues, other than those arising from the reports of the Comptroller and Auditor General.

The Public Accounts Committee represents a specialised area of scrutiny. Scrutiny examines policy whereas the Public Accounts Committee examines the use of States' resources in the furtherance of those policies. Consequently initial enquiries are made of Chief Officers rather than Ministers.

Appendix 1

Appendix 2

[1] C&AG Report Management of the Bus Contracts, paragraph 101

[2] Standing Orders of the States of Jersey 1st January 2006, No. 132.