NI Water: How Mr MacKenzie jettisoned millions in commercial savings…

Adrian Rutherford was pretty close to the mark with his suggestion in Wednesday night’s paper edition of the Belfast Telegraph that Northern Ireland Water may have been ordered by the courts to pay out up to £10 Million in back payments to the French IT contractor Steria.

In dispute had been payments for services to enable the charging of domestic water rates. Water rates which, of course, were never collected. To paraphrase NI Water’s Chief Executive’s presentation to the Public Accounts Committee (PAC), the settlement figure almost certainly comes to ‘a very large number’.

But when Mr MacKenzie gave his evidence to the PAC back in July, he had a rather different figure in mind. He was referring to the six per cent commission deal struck with the contractor Contracting Out (CO), who had identified a potential saving of up to £23 Million on that same Steria contract.

To be clear, this was a percentage deal in which any payment would be sourced in a fixed proportion from any money that was successfully ‘repatriated’ to the company.

At the PAC, Mr MacKenzie tried to present this as being somehow unusual. Yet, there is a similar provision in the Steria contract (CR 18), introducing a performance related commission in relation to the recovery of near term legacy debt. In other words a failure to make any savings would have earned Contracting Out precisely nothing.

In fact, in working through the sub contracts, they had already successfully found around £12 Million of savings. But by the time it came to forensically examining the main contract, MacKenzie, in office a matter of weeks, looked at the no win no pay contract, freaked and then pulled their services.

His decision appears to have had substantial financial repercussions.

Eventually the Chief Executive pulled out of NI Water’s aggressive legal action against Steria and dispersed the specialist team that had been assembled to identify any possible savings. This despite the fact that extending the CO contract in order to support the legal case would have cost NIW £160k at most.

However, after Contracting Out had been released and NI Water’s Commercial Director retrenched, Mr MacKenzie then employed Deloitte to take over Contracting Out’s work – at the cost of around £400,000 – preparing for the legal case before it was dropped just as it was going to court.

(Incidentally, according to the answer to an AQ from the Minister to Patsy McGlone, Deloitte cleared their own senior partner Jackie Henry – “as an individual” – of any conflict of interest to sit on the Independent Review Team which examined the matters directly arising from this issue.)

Having ditched their own legal action, Northern Ireland Water then had zero likelihood of recovering any proportion of that previously identified £23 million. In other words, Mr MacKenzie turned his back on substantial savings at a time when he also was looking for draconian cuts in staffing levels in NI Water.

Some estimate that these cuts could mean up to 400 job losses: which is about a third of the workforce. It’s an argument Mr MacKenzie fought and lost last year with the now sacked Board. Indeed, even his own directors were against it at the time. And no doubt it will have been on the table with new interim Board today yesterday.

Yet Slugger understands that Mr MacKenzie still has virtually no backing for such extreme measures at senior level within NI Water, and with a strong Sinn Fein and Trade Union representation on the Board, there is likely to be substantial political resistance to such measures this time out.

Having gutted the Board of any substantial experience of running a utility, will the current Board be in a position to argue through the detail with him?  Or, more importantly, can they withstand the external pressure that will almost certainly be put on Northern Ireland Water by the Regulator to cut its costs? Have they called their CEO to account for his handling of the Steria case?

And, not least, why did Mr MacKenzie break up his own ‘value for money’ team?

Of course there is no guarantee the Commercial team could have returned in full the ‘identified’ £23 Million. But given they had already found £12 Million of savings within the sub contracts there must have been at least a reasonable chance of success.

Instead, Mr MacKenzie allowed himself to get distracted by other, relatively minor issues – like the totting up of the total budgets of poorly processed single tender actions – with little commercial value, fiduciary significance or wider import. Yet the Minister held that those minor infringements were enough to sack four fifths of the non execs on the Board.

It will be interesting to see Mr Murphy’s (and the interim Board’s) reaction to Mr MacKenzie’s handling of both Steria cases, now that anything up to £10 Million in public money (along with a hefty legal bill) has been paid out in respect of the Steria case, and possibly as much again lost in pulling out of the original legal action.

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