Exclusive report on NI Water: “I need help from friends at the minute…”

This three hour plus interrogation of two senior civil servants is a masterclass of how members of a parliamentary committee should conduct an inquiry.

The matter before them was a so-called ‘deep dive’ report on irregularities around a relatively small number of ‘single tender actions’ (ie, where for a given reason, it has been decided there is no need for open competition for an outside contractor).

To put all of this into a bona fide business context: 21 poorly conducted transactions (none of which breached the law) valued in total at £8.4 million out of a larger total of £28 million spent over 73 on such single action contracts over three, which accounts for, at the very most, 3.75% of NI Water’s total spend. In the private sector to achieve such a 96.25% compliance rating is widely considered to be ‘world class’.

It is certainly not an excuse to, as DRD did, summarily fire the Board.

The upshot is that on foot of this report, last March four out of five non executive directors were sacked by Minister Conor Murphy, after a recommendation by his own Permanent Secretary Paul Priestly (and one of those questioned above).

The report itself contains little or no tangible evidence of negligence in the board’s oversight. Although it does contain some spectacularly weaseley passages. For instance, it clearly states “it was not clear that there was a systemic failure” it then, rather bizarrely goes on to say:

However, in light of the emerging findings from the deep dive audits, provided these are validated by due process, a finding of systemic failure in operational procurement would be justified.

It is important to note that the compilers of this internal review were all recruited and retained on a single tender action at the cost of £50,000 to the tax payer. The services of Jackie Henry a partner at Deloitte and Touche in Belfast were charged at £1,100 a day (remember Deloitte were the lead firm in setting up Northern Ireland Water, which cost in the region of £4-6 million in due diligence and other fees). Independent consultant Glenn Thompson was charged at the lesser rate of £800. Interestingly, Peter Dixon, who is currently Chief Executive of Phoenix Gas did it for free. For his ‘friend’, the Chief Executive of NI Water?

When asked by Mr McGlone what the nature of his relationship to Mr Dixon was, CEO Laurence MacKenzie insisted that they had only met three or four times for coffee in the period since he had been appointed Chief Executive last August.

But it became obvious from the text of emails read out in the PAC session by John Dallat that MacKenzie’s professional relationship with Dixon may have been a great deal more intimate than he was first prepared to share with the Committee. For instance on 17th September NI Water’s CEO was sharing his thoughts about the internal affairs of his company with Dixon. By the 27th November Dixon was told by MacKenzie, “I need help from friends at the minute”.

Although the deep dive report notes that whilst the board met with DRD just ten times in a year, DRD officials met with NI Water some 82 times in the same period, they seem to make nothing of this fact.

And despite targeting the non executives (whose role is defined as bringing independent oversight, rather than management) Correction to previous text: There are currently four civil servants being disciplined (as reported to the PAC).

Only non executive directors lost their posts. And of those, only the ones with least direct contact with the way operational business was being done.

One the most controversial aspects (as has been noted by some readers in previous Slugger threads on this subject) is that two of the non executive directors were recruited at the same time, and only a year before MacKenzie discovered the ‘problem’ with procurement.

One, Declan Gormley, was sacked whilst the other, Don Price, was retained. Again the report makes no real distinction between the two, other than to say that neither can be held to account too strongly for the problem with ‘single tender actions’.

And yet, of the two, it would be reasonable to assume that Don Price, as chair of the Audit Committee, was a great deal closer to the source of the problem than Gormley, who had no direct responsibility on the matter. And whilst the  deep dive team was conducting its business, even Mr Price appears to have shared the misgivings of fellow directors at the apparent determination of the ‘deep dive’ panel to “find governance failures rather than working with the Board to ensure the necessary corrective actions.”

However, since then Mr Price has signed an undertaking requiring him to give unequivocal support to Mr. Laurence Mackenzie, CEO of NI Water, to implement all findings of the IRT report. And alone, he gets to keep his job. One of the many key questions the PAC committee will want to ask of Mr MacKenzie and Mr Priestly when they next meet is, was this was a condition of his being able to remain on the board?

If it was, it would substantially interfere with his capacity to continue his duties as an independent non executive director. Not to mention throw quite a different light on why the others were sacked.

As a footnote, the dour view of NI Water’s performance in procurement taken by DRD and its new Chief Executive was not shared by the Central Procurement Directorate, at Department of Finance and Personnel, which in September 2009 found that “NI Water has achieved the EFQM Bronze award for their supplies and services division and an Achieving Excellence Awards for Capital projects division”.

As Pete noted when the deep dive report was published in March, the continuation of subsidy for water charges meant that not only was NI Water bound by the GoCo legislation, it also became a Non Departmental Government Body which bound it to an

…incredibly complex governance and stakeholder environment involving the Utility Regulator, the SU; and from 2008-09, the additional overlay of NDPB accountability requirements. In addition to the complexity of the model, evidence presented to the IRT has highlighted the significant resource commitment required across the entire governance system to maintain the model.

In short, there is no significant procurement problem inside NI Water. But someone certainly appears to have been looking for scapegoats. In the meantime there are other serious questions to be asked. Not least what the Public Appointments Commissioner, Felicity Houston, has to say publicly about the independence of the new intake of non executive directors and the rushed manner of their appointments?

And what reassurance will any future appointee have that their independence (as required by the law) can or will be guaranteed?