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?

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  • Drumlin Rock

    Lets cut to the chase, and go to the political end of the Spectrum, Sinn Fein remain at least partly socialist, ie. they want the control of much of society to rest with the State, and as it seems they will, jointly with the DUP, retain that control for some time to come.
    Due to circumstances The Water Service escaped privatisation but as a half way step was made into a GovCo like the Ulster Transport Holding Company. This is halfway too far for Sinn Fein and Connor Murphy seems determined to bring it back fully under his control at the DRD. for that to plan to work it would be useful for the GovCo NIW to be seen as a failure.
    Therefore the influence, if any, the Minister had on the implementation, investigation and enforcement of these issues must be brought fully into the open, as must his possible ambitions to return NIW fully under his departments control, furthermore some of the new appointments are closely associated with many of his party’s political viewpoints, would that also include those in opposition to GovCos? and would such strongly held views be compatible with the interests of NIW?

  • Mick Fealty

    Well, laying the politics back down for a moment, if there is not some movement forwards or back, more people are going to get crunched in this push me/pull you contraption…

    It’s clear the CEO is caught between two masters… The Board of the GoCo and as sub accounting officer he is directly answerable to the chief accounting officer, AKA the Permanent Secretary…

    To coin a phrase: “People are going to get hurt in that there thing…” And not to let the minister off the hook, but it is the Executive collective will to withhold water charges that triggered the NDGB status that’s conflicting so severely with the GoCo set up.

    Though admittedly there is no reason why it necessarily has to be… if there had been the will to make it work…

  • A GovCo is neither beast nor foul, and as Mick says creates two masters. There is no justification for water being in the Public Sector, and it should be made clear that GovCo is there as a step to a sale – though not the sort of fixed sales we’ve had in the past in NI. Reduces the public sector and forces efficiency all in one go and makes water/business no longer a political matter.

  • Pigeon Toes

    It was nice to see Mr Priestly standing up for wee Lawrence because he had “uncovered” the problems.

    He normally doesn’t have that much respect for whistle blowers….

    It was very clear how uncomfortable Messrs Priestly and McKenzie were.

    DRD have a tendency to use their “chums” for “independent reviews” for such procurement problems eg ex civil servants, and “consultants” who also happen to be acting as DFP paid “expert witnesses” around the time of the “investigation”.

    The reason given for not using other accountancy firms in this instance, therefore does not stack up…

    After such shambolic performances by Priestly, Mc Kenzie and Patterson, one is left with the suspicion of blatant lies, cover ups and scape goating….

    Will they retain their posts, and indeed when are our MLA’s in various committees going to get their finger out and start asking the hard questions of civil servants?

    I was very impressed with the questioning from Mc Glone, Dallat and Purvis.

    The other 105 should take note…

  • Mick Fealty

    The GoCo is actually subject to the rules of Company House, and not government diktat. We await to see whether the PAC will follow through on the good work of last week and ask about what conditions if any the remaining non exec has signed up to…

    I presume the Accounting Officer arrangement relates to the conflicting governance that comes with NDPB status which puts it inside the of the civil service… That was triggered independently by the size of the subsidy transferred from the block grant to NI Water to replace the income that would have come into them through the front door, so to speak..

  • Drumlin Rock

    the will to make it work….
    there is the nub of the problem Mick, and the root of issues.

  • Pigeon Toes

    DRD usually reserve the right to audit ANY company whom they give a contract to (by fair means or otherwise), what the hell was so different here?

  • DC

    Part of the problem rests with Civil Servants not having enough strategic discipline and then getting in a muddle.

    Remember the key to this rests on the civil service knowing fully what it wants done and then to allow the private sector to deliver the actual service.

    Drumlin – SF aren’t that bothered sure Caitriona Ruane outsourced the pensions management to Capita with relative comfort.

  • DC

    Mick re political reasons (to cut a long sentence short) are you suggesting that Conor Murphy made a scene in a bid to look hard and quite relevant to voters because he wanted to appear to stand up for the taxpayer, banking the political capital to be had from that?

  • Pigeon Toes

    “getting in a muddle” I think it was much dirtier and wilful than that.

  • DC

    Well I wonder if these civil servants will be dispensed with as was the case with those certain others.

  • Pigeon Toes

    Unlikely… The Terms Of Reference for the Independent review were quite clear on where the axe was going to fall:

    “The terms of reference for the independent review are defined as follows, to:

    • analyse how the governance failures detailed within the Contracts Approval Internal Audit report occurred;
    • recommend any further action necessary to address the governance issues surrounding procurement;
    • recommend any additional governance arrangements to be introduced by NIW;
    • make recommendations in relation to the position of NIW Board members (executive and non-executive) and other senior managers involved in these issues;
    • provide an analysis of any failures by DRD as Shareholder and any necessary recommendations; and
    • make any other recommendations the review team believe to be relevant and necessary under the circumstances.”

  • Granni Trixie

    Anyone know who the new appointees are?
    Were proper processes of selection observed?
    What I’m getting at is, is this to be a new start or more of the same?

  • Pigeon Toes

    http://news.bbc.co.uk/1/hi/northern_ireland/10458495.stm
    “The new directors are: Mairtin O’Muilleoir, a Belfast businessman and former Sinn Fein councillor; Peter Bunting, a senior trade unionist.

    Lawson McDonald, a former senior civil servant and Kevin Steele an accountant and former director at NI Electricity.

    They join Don Price, who remained on the board of NI Water following the report into contracts and procurement.”

  • Brian Walker

    As I read this without independent knowledge, the sacking of independent directors seems arbitrary, in a questionable use of process. The whole point of ind directors is for them to act as guardians of the wider public interest. Is there an allegation that Conor Murphy wants to pack the board with Sinn Fein and sympathisers? Or does he have a case, that SF and the left are under represented in public appointments generally?

  • DRD permanent secretary Paul Priestly told MLAs he was unable to persuade Mr Mellor and other board members of the importance of the issues.

    But Mr Mellor told the Belfast Telegraph yesterday: “Mr Priestly’s comments are nonsense.”

    The ex-NIW chairman added that the company board had “fully supported” its chief executive in conducting an investigation on procurement.

    “We took it very seriously and had we have been given the opportunity would have sorted it out, as indeed we had sorted many other issues we inherited. However the action taken by DRD in mid/late January effectively disenfranchised the board.”

    Why was Mellor, the sacked chief executive of Anglian Water Group, appointed to NI Water? Will PAC be grilling Minister Conor Murphy with regard to his role in the debacle? Why won’t PAC provide a platform for the sacked NEDs to defend themselves?

  • Felicity Houston’s office rubbished the appointments process [pdf file] that was used to select the previous two NEDs to NI Water.

  • Pigeon Toes

    “The methodology used to shortlist, resulted in candidates being
    assessed against various different, but apparently essential, criteria at
    interview.
     One candidate, who was ultimately appointed, was the only person
    assessed against a particular criterion. How therefore could this one
    criterion have been ‘essential’ if none of the other candidates were
    assessed against it”

  • Pigeon Toes

    “Victimized…I’m not looking for your sympathy but it’s been tough” Paul Priestly to PAC 1st July 2010

  • “The Minister was presented with an unranked list of the three
    candidates together with pen-pictures and a recommendation. Some rationale for the recommendation was also provided. The submission made no reference however, to the probity issue relating to one of the three candidates found suitable.”

    I wonder if probity featured in the recent NED selection. It would appear that some civil servants would be strong candidates for BBC Radio 4’s “I’m Sorry I Haven’t A Clue”.

  • “Committee [Minutes of Evidence] reports are published within three working days of the proceedings covered, excluding days on which the full Assembly sits.”

    I’ve just phoned the NIA Communications Office and asked to be put through to the Hansard Office. “What do they do?” was the initial response. I was then put through to a second CO staffer who told me that these minutes would be sent out first to PAC members and should be published in another two days or so. As the Assembly is in recess I would have expected the Hansard report to have been published by today.

  • The appointment of Laurence MacKenzie looks a bit peculiar too – and the VAT man cometh:

    [16 min in] MacKenzie: “I joined NI Water on 27 July … When I applied for the job I didn’t expect to be appointed accounting officer but by the time I had taken the role up the reclassification [of NI Water] to an NDPB had happened and Mr Priestly made me aware on the second day that he intended to appoint me accounting officer”

    [The Office of National Statistics (ONS) is of the view that Northern Ireland Water (NIW) should be reclassified from having Public Corporation (PC) status as a Government Owned Company to having Central Government status as a Non-Departmental Public Body (NDPB). .. [Under NDPB status] At least £400m will therefore be squeezed out of the overall NI budget on an annual basis . The Prime Minister has agreed to waiver this payment for the period 2008/09 and 2009/10 but not thereafter ..The reclassification of NIW will undoubtedly impact indirectly on the level of VAT to be paid to HM Revenue & Customs (HMRC). .. Additional VAT costs could be up to £60m in 2009/10 if the existing agreement (with HMRC) no longer remains in place. Up to £130m would be involved if HMRC sought to recover VAT payments for 2007/08 and 2008/09… March 2009]

  • “DRD permanent secretary Paul Priestly told MLAs he was unable to persuade Mr Mellor and other board members of the importance of the issues.

    But Mr Mellor told the Belfast Telegraph yesterday: “Mr Priestly’s comments are nonsense.”

    The ex-NIW chairman added that the company board had “fully supported” its chief executive in conducting an investigation on procurement.

    “We took it very seriously and had we have been given the opportunity would have sorted it out, as indeed we had sorted many other issues we inherited. However the action taken by DRD in mid/late January effectively disenfranchised the board.”” .. Belfast Telegraph

    Why was Mellor, the sacked chief executive of Anglian Water Group, appointed to NI Water? Will PAC be grilling Minister Conor Murphy with regard to his role in the debacle? Why won’t PAC provide a platform for the sacked NEDs to defend themselves?

    Leaks seem to be the order of the day, even the Permanent Secretary was ‘accused’ by a PAC member of going off for a leak during a ‘comfort break’! According to a report on Good Morning Ulster this morning another leak has revealed that Peter Dixon is very unhappy with the line of questioning adopted by three PAC members into his relationship with Laurence MacKenzie, a relationship which Dixon asserts was a long term business one. Mackenzie’s reference in the PAC session to a few cups of coffee looks insipid by comparison.

  • The report has now been published!! It’s available on the PAC page at the Stormont Assembly website.

  • This ‘chummy’ email from MacKenzie to Dixon is now on the public record ie in the July 1 PAC report:

    “Peter
    How would you be fixed for a ‘catch up’ next week? Lots going on!…
    Would work for me
    I need help from friends at the minute.
    Hope things are fine with you now.”

  • Does the following exchange have any bearing on who was sacked and who wasn’t and might the independence of the new NEDs be unnecessarily restricted by binding promises to the Minister?

    Mr Priestly: The Minister asked Don Price to give him three assurances, one of which was that he would support the chief executive in implementing the independent review team’s recommendations. …

    Mr Dallat: Did he sign it?

    Mr Priestly: He wrote a letter to the Minister in which he said that he was happy to agree to those conditions.

    Mr Dallat: Did the other non-executive directors not do that?

    Mr Priestly: I am not following you.

    Mr Dallat: You will in a minute, do not worry. It would be good for the Public Accounts Committee to see that letter, which was signed. In fact, it would be a good idea for us to see all the correspondence, so that we, as an independent body, could make an independent assessment of what is going on in Northern Ireland Water. I have nothing more to add at the minute.

  • Nevin,
    “In fact it would be a good idea for us to see all the correspondence”
    I take it that Mr. Dallat is confident that the DRD won’t withold any information from him?

  • Splog, DRD has form when it comes to withholding information: http://scr.bi/9VyNFT It can also release useful information that hasn’t even been requested!!

    Some of this information will be available from other sources and I’m confident that John Dallat (and others) will receive such material.

  • There seems to be some confusion about the establishment of the ‘independent’ review and its team

    “An independent review team was jointly commissioned by the Department for Regional Development and NIW accounting officers, with my full agreement, to undertake a review of procurement governance issues in NIW.” .. Conor Murphy, Assembly statement on March 15

    Mr Priestly: Along with Lian, I advised the Minister about the composition of the independent review team.

    Mr Priestly: I did not consult Laurence or anyone else on the appointment of the independent review team. Lian and I did it, and we did it very quickly.

  • electricity and water don’t mix!

    MacKenzie was renowned in N.I.E. [text removed for legal reasons – mods]

    He will go, sooner or later. The only issue is whether he jumps himself or is pushed, no doubt with a substantial pay off. He will not be missed when he does go.