HC Deb 11 December 1974 vol 883 cc725-38

2.20 a.m.

Mrs. Sally Oppenheim (Gloucester)

I am extremely grateful, Mr. Deputy Speaker, to have been given this opportunity to raise a matter in this House which is of urgent public concern and of particular immediate concern to my constituent, Mr. Neil James, of Gloucester.

Mr. James was, until 28th December 1973, a measurement engineer working for Messrs. Freeman Fox and Partners on sections 2 and 3 of the M5 motorway from 1970 onwards.

As I shall attempt to show the House through the sequence of events that led up to his leaving the firm and subsequently, Mr. James is a person of very great integrity, public-spirited and completely unselfish, who in doggedly pursuing for more than a year the question of what he considers to be an unwarranted overpayment of public funds, did so at the expense of considerable personal financial loss to himself and his family, and seriously endangered his professional future.

I understand that the hon. Member for Derby, North (Mr. Whitehead), wishes to intervene if he catches your eye, Mr. Deputy Speaker. To substantiate what I have said from his own personal knowledge of Mr. James's character.

During the course of the contract referred to, Mr. James became increasingly disturbed about the measurement of the works and other actions and claims by the company for which he was working. He continually challenged these, and finally made a representation to Mr. Honey, the Financial Controller of the South-West Region Road Construction Unit of the Department of the Environment on 7th November 1973—over a year ago—to which letter he has never received a reply from Mr. Honey. The issues raised in this letter were of interest to the whole nation—and contained potentially serious allegations.

The first issue was the alleged discovery by Mr. James, as a result of his own re-measurement of the works, that 10 per cent. had been added to the measured quantities which form the contract, by means of a hidden contingency. This allegation alone should have merited an immediate independent inquiry. This did not take place, however.

The civil engineering contracts for this project were based on the standard method of measurement, and Mr. James questioned why the bills of quantities included this "hidden contingency" which, apart from its own cost, carried additional professional fees roughly 10 per cent on £1 million. He also raised the question of how many of the contractors knew of its inclusion, and, of course, pointed out that these hidden quantities changed the whole basis of the tenders by a substantial sum.

The facts as revealed by Mr. James show clearly that the inclusion of this hidden contingency was known to certain senior persons within Freeman Fox and Partners, and that it was intended to utilise this in order to complete agreement with the contractors outside their terms of reference with the Department of the Environment, and to convert these sums of money into measured work, thus avoiding the reference to the Department. The system was almost foolproof, with one exception—Mr. James refused to implement the settlement and "lose" the items into measured work.

The second point that he raised was with regard to the unnecessary breaking up of earthworks to form four balances, which admits the import of more material and added approximately £250,000 to the claim in measured work. A principle that had not been discussed with the South West Region Road Construction Unit.

This is a very complex and major part of the contract, which involved further consequential costs, and this claim met consistent opposition from Mr. James throughout the whole period. He strenuously attempted to get this course of action corrected from the start. However, he failed to get acceptance of a correct form of measurement approved. Indeed, he was told off for giving too much detail in his own measurements.

One internal company memorandum to Mr. Eyre from a Mr. Smith, dated 8th June 1971, read: I enclose copy of letter received from South Western RCU from which you will see that our luck has run out. Will you please let me have a very brief factual summary of the main earthworks items showing over-expenditures and savings. I would hope that we can justify the whole of the £550,000 in terms of additional quantities of billed items and straightforward additional items. I would hope at this stage to draw a decent veil over savings and the Piffs Elm settlement. Since we are asked for a 'brief explanation' there is no need to go into the sort of detail that we did for the drainage over-expenditure. Perhaps we can discuss this on the phone sometime. This memorandum was included with Mr. James's representations to Mr. Honey last November, as was a previous internal memorandum from Mr. Davies, of Freeman Fox, to H. Smith, dealing with measurements and claims, which in relation to a sum of £99,101 on the Piffs Elm settlement says: This money is at present 'lost' in the earthworks but with the end of the works coming into sight, this is now difficult and I would like instructions as to its disposal. Should Variation Order No. 4 be approved, then it can once more be 'lost'. This second memorandum is in the context of the further allegations brought to Mr. Honey's attention concerning the settlement of the Piffs Elm claim for £93,000 which would not otherwise have gained departmental approval. It must approve claims of ever £20,000. The intent was to measure the claim into earthworks and so lose it in the calculations so that it was never placed before the Department of the Environment.

Finally, there was the claim for the artesian cut, in which £130,000 was paid against Mr. James's wishes, and which after two years the project engineer at Freeman Fox agreed was possibly worth only £20,000 of the original estimate. On 25th October 1973 Mr. James managed to get this redressed estimate accepted. At a meeting on 12th November this was finalised, following which Mr. James was refused permission to take any part in the rest of the meeting, which concerned the other matters on which allegations had been made.

Mr. James never returned to the office, and there followed a period of extreme pressure on Mr. James in an attempt by Freeman Fox to get him to return and to find out the nature of the allegations he had made. Previously Mr. James had been offered what amounted to promotion. However, he refused to return, and was formally dismissed on 28th December 1973. Since then he has been unable to obtain employment with any major construction company. Meanwhile, he patiently awaited some action on the part of the South Western Region Road Construction Unit in reply to his letter of 7th November 1973 and subsequent telephone conversations.

No written reply was forthcoming between November 1973 and 22nd March 1974—five months later—when he received a note from the Deputy Director of the South-Western Region Road Construction Unit in reply to a letter from him dated 20th March asking what action had been taken with regard to his representations to Mr. Honey. The letter from Mr. Jefferson said that he had been asked to furnish certain information in regard to the matters discussed between Mr. Honey and Mr. James. The consulting engineers had replied after five months that they required further time to consider these matters. When all the information was brought before him, appropriate action would be taken in accordance wih departmental instructions. I hope that the Minister will tell us when his Department was first informed of these circumstances. Was it at the time that this letter was written? If not, when?

Mr. James replied on 1st April asking what question had been asked and what answers had been given. He received no reply to that letter. Towards the end of May 1974 he came to see me and for the first time expressed doubts as to the possibility of complicity on the part of the officials of the South Western Region Road Construction Unit in the light of their failure to report on any effective action taken on his allegations over a period of six months. He asked me to take up the whole matter at ministerial level, and, following an exchange of correspondence, the Minister agreed to see the hon. Member for Derby, North and myself on 29th August but refused permission for Mr. James to be at the meeting, although in such a complex technical case both the hon. Gentleman and I thought this most unsatisfactory. Indeed, it is one of the most unsatisfactory aspects of this whole matter that Mr. James who carried out the remeasurement himself and who knew the method of calculation employed and the system, has never once been called in for discussion or consultation by the South Western Region Road Construction Unit or by the Department.

The legal point on which the Minister refused to see Mr. James was that the Treasury Solicitor had advised him that Mr. James might be involved in a legal action and the Minister would therefore be involved as a witness. How could he be involved in a legal action for libel when the only evidence of such libel lay with the Department? I questioned that at the meeting.

However, matters were fully discussed at the meeting, and the hon. Member for Derby, North and I expressed great dissatisfaction that such a lengthy period had elapsed since serious allegations had been made during which time no adequate investigation had taken place. The Minister gave an assurance that a detailed inquiry was in progress and that a remeasurement of the work was taking place by a consultation engineer employed by Messrs. Freeman Fox. Both the hon. Member and I expressed great dissatisfaction, which at that time the Minister did not accept. Yet on 19th November I received a letter from the Minister saying that it had been decided that a further independent investigation should be put in hand and that there would also be an interdepartmental investigation. He also said that the consulting engineer who had already taken the measurements had welcomed this. Of course he welcomed this. He welcomed a course of action which would mean another protracted delay in bringing this whole business to justice.

The situation is that over a year since the first complaint was made the Department has now, and only now, decided to institute an independent investigation, and we are left wondering what would have happened if Mr. James had not come to see the hon. Member for Derby, North and myself. Mr. James is a man of very strong principles. Because of his determined efforts to see justice done, he has been virtually unemployed for over a year with a possibility of another nine months to go before the matter is resolved, which is accounting for no little hardship to himself and his family. During the past year he has been subject to continual frustration and doubt as to whether the matter would ever be aired.

Indeed, the House may question why he did not come to me in the first place. The reason was that he took it for granted that the matter would be handled quickly and correctly by the Department when he made the complaint, with no adverse publicity, which he wished to avoid at all costs. It was only when there was no other course open to him that he pursued the course that has led to this debate and the airing of the matter in public.

When the Minister replies I hope he will be able to tell the House, as a result of the preliminary investigations that have taken place, and of the internal investigations which have taken place also, of the Department's attitude to the general principles that have been raised by Mr. James's questions in this matter.

I hope above all that the Minister will be able to tell us that the matter has been expedited. Sufficient delay has already taken place. I am not prepared to accept a situation in which the whole matter is allowed to drag on until it is forgotten.

Finally, I hope that the Minister will be able to give an undertaking that if the investigation upholds fully or partially what Mr. James has alleged, he will find some way of recompensing Mr. James for his loss and offering him some sort of commensurate employment since, obviously, his professional life in the industry is as good as ruined.

2.32 a.m.

Mr. Phillip Whitehead (Derby, North)

I am grateful to the Minister and to the hon. Lady the Member for Gloucester (Mrs. Oppenheim) for allowing me to intervene.

When Mr. James came to see me at the beginning of May he came as a lifelong friend and former constituent whom I believe to be of the highest integrity. I advised him to see his constituency Member of Parliament, and I congratulate the hon. Lady very warmly on the lucid but passionate way in which she has presented what seems to both of us to be a scandalous story.

Mr. James was placed in a position where he had to ask himself at the outset "What in these circumstances should a good man do?" He took the honourable course, and he acted throughout, I think, with discretion and care. It was his concern that there should not be a public scandal harmful to a major firm which partly explains the delay before these matters were raised in Parliament.

The key issue which the hon. Lady and I sought to raise at the Department of the Environment on 29th August last was accountability, whose agent was the SWRCU, and what it should do when allegations like these made by Mr. James about overmeasurement on M5 contract 2/3 within Freeman, Fox and Partners are put before it?

Mr. James put his allegations in writing before Mr. Honey of the SWRCU on 7th and, verbally, on 12th November 1973, 13 months ago. He was told by Mr. Honey that they would be passed to the director. Indeed Freeman Fox and Partners confirmed in letters dated 24th and 28th December 1973 that it knew of the matters put before the SWRCU. But who else did at that time? The key question to be asked in this debate is: did the SWRCU pass on these matters to the Department of the Environment or did it not? If not, did the tardiness lie in the Department? If not, it lies within the SWRCU. It must lie with one or the other.

Mr. James next heard from the SWRCU on 26th March, in the Director's absence. What was happening in the meantime? We do not know. To this date we have not been able to find out.

On August 29th we were told by my hon. Friend that checks were being carried out by employees of Freeman Fox and Partners. The hon. Lady and I could hardly contain ourselves at this information, but it was not until 19th November that we were told that independent surveyors were to remeasure the contract, which meant another nine months' work. At no time has anyone approached Mr. James and asked to interview or see him, or to consult his files, one of which I have in my possession My hon. Friend has only to turn and stretch out his hand for it. Here is some of the information which these investigations should have had before them.

I have some hard questions for my hon. Friend which I hope that he can answer.

First, why was there such a delay in the SWRCU reporting these charges to the Department? We do not need nine months of further quantity surveys to tell us that.

Second, what was the result of the first investigation into Freeman Fox and Partners?

Third, has Freeman Fox and Partners been the subject of any other departmental inquiry or suspension before or during the period of these allegations?

Fourth, is there any reason to believe that other contracts on the M5 have been over-measured by 10 per cent. so that the provisional quantities used in the earthworks calculations could be manipulated to advantage?

Fifth, I understand that another measurement engineer formerly on the M5, Mr. Peter Scott, is prepared to come forward with corroboration of the inclusion of the 10 per cent. hidden contingency on other M5 contracts. Will the Department undertake to receive his evidence?

This is not just a matter of Mr. James's virtual ruin since he decided to speak out about Freeman Fox and Partners, though that first concerns me. It raises the gravest issues of scrutiny of public expenditure on motorway construction and the rôle of the road construction units as the guardians of the public interest.

Those are the matters to which my hon. Friend should address himself.

2.37 a.m.

The Under-Secretary of State for the Environment (Mr. Neil Carmichael)

I have listened carefully to the hon. Member for Gloucester (Mrs. Oppenheim) and to my hon. Friend the Member for Derby, North (Mr. Whitehead), and I take what both have said with great seriousness. I am well aware of the gravity of their allegations.

I assure both hon. Members that I am not playing for time when I say that probably it would be of assistance to the House if I described the contractual procedures in some detail, since they are relevant to an understanding of the complaints which have been made and of the method of investigation which is proposed.

Tenders are called for from suitable contractors, selected by the Department on the basis of documents prepared by the engineer to the contract. In the case to hand the engineer was the firm of Freeman Fox and Partners. The documents provided are the conditions of contract, the specifications and drawings for the works and the bills of quantities.

Of these, the bills of quantities are the most important to this debate. The bills of quantities set various quantities against item descriptions compiled from the Department's standard method of measurement. Each tenderer on the list selected by the Department values the work based on his experience and resources and enters rates against each item. Simple arithmetic leads to a tender figure. These bills of quantities as completed by each tenderer are submitted to the Department as his price for completing the works described. The contract for the work is awarded by the Department to the tenderer submitting the lowest tender. The estimated quantities then cease to have relevance since the whole of the work executed is subject to remeasurement as built. The hon. Lady and my hon. Friend will remember that we went through these points during the discussions in my office in August.

Interim payments are made to the contractor at monthly intervals on the basis of work done. I must stress, however, that these are interim payments; full and final settlement is arrived at only at the end of the contract when all disputes have been resolved. This is not yet the case for the M5 Cheltenham-Gloucester contract.

Civil engineering contracts rarely turn out as expected in every detail, and the earthworks bill provides the most difficult items for which to forecast quantities. Ground conditions, when work is in progress, are variable and often different from those assumed in the tender.

Where work arises for which there is no provision in the bills of quantity, a variation order must be issued by the engineer describing and measuring the new work to be done. All variation orders have to be reported to the Department as the client. Further, where the conditions of contract provide for it the contractor may seek an extension of time or may make claims for matters which are not covered by his tenders. The client is also notified of all claims made by the contractor.

The rôle of the engineer is to agree the measurement of the works with the contractor, to value the work carried out under variation orders and to evaluate the contractor's claims made under specific provisions of the contract.

It will be appreciated by hon. Members that this is a complex business involving a number of people and great expertise by the engineer. The Department is nevertheless, a technical client with expertise of its own and has a number of procedures to keep itself informed on contractual and financial matters. In the case of major motorway schemes prepared and supervised by consultants, the Road Construction Unit is the Department's main agency for maintaining adequate information on the contract.

Mrs. Sally Oppenheim

I am sorry to interrupt the hon. Gentleman. Time is short. Will he please get round to answering the important questions which have been put to him?

Mr. Carmichael

The hon. Lady has made a number of allegations, as has my hon. Friend. It is important to set out, in order to assure the public, the methods used by the Department. I am the first to agree that one reason for methods being continually improved is precisely that hon. Members have raised questions and experience has been gained.

Mr. Whitehead

Does not my hon. Friend agree that prima facie the person most likely to be qualified to investigate this position in the first instance and ultimately as the agent of the Department is the measurement engineer himself?

Mr. Carmichael

It is important to remember that we are discussing one contract only. I have already assured the House that I am very concerned to get to the bottom of this matter and to investigate the allegations thoroughly. I must set out the methods used by the Department in all contracts. The Department of the Environment lets contracts worth several hundreds of millions of pounds a year. Although this contract is the one in question, we want to find out whether all our systems are proper and suitable and whether from this we can make any advantageous alterations.

I stress that it is only an allegation that has been made. It is alleged that the engineer to the M5 Cheltenham-Gloucester contract has overmeasured the quantities, resulting in overpayment to the contractor, and, further, that the settlement of certain claims on which the RCU should first have been consulted has been affected by an increase in measured quantities.

As I explained very fully to the hon. Members when I discussed these matters with them on 27th August, these allegations were first made in November 1973 to the Director of the RCU who immediately requested a report from the consultants. In the meantime, the allegations were brought directly to me in July of this year.

It is suggested that the time taken by the RCU to deal with the allegations was over-long. However, the director's action and prompting did result in the lengthy report which was available for study just after I last discussed this matter with my hon. Friends.

Mr. Whitehead

Is my hon. Friend now saying, in effect, that seven months elapsed between the Director of the SWRCU receiving these allegations and their being brought directly to the attention of the Department?

Mr. Carmichael

No, their being brought directly to the attention of the Minister, which is a rather different thing. When an allegation is made, surely it is the responsibility of the director of a road construction unit, where people in the unit are being accused of unprofessional conduct, to make a thorough investigation before he brings the matter to Ministers. The time taken to produce the report, bearing in mind the engineer's remeasurements, is not incompatible with the time required by an independent firm to undertake the same extensive work.

Following the report's receipt, I concluded that it was necessary to have a completely independent report from a firm of quantity surveyors to see whether the allegations had any foundation. This I have done.

Those quantity surveyors have now been appointed, and the independent investigation has been put in hand with the willing co-operation of Messrs. Freeman Fox and Partners. However, the House will recognise that it is a complex and detailed investigation which has now been ordered to take place, including some physical remeasurement, and it is likely that this work will take a minimum period of between six and nine months to complete.

The study will run separately from the work of finalising the M5 Gloucester—Cheltenham contract, which will continue with Freeman Fox and Partners acting as engineer to the contract. The fact that the contract is not yet finalised means that there are substantial moneys still in the Department's hands, and, furthermore, the consultant's fees have not been fully paid.

I was asked whether Messrs. Freeman Fox and Partners has been subject to any previous investigation by the Department. I must report that it has. Early in 1972, following the publication of the report of the Royal Commission into the collapse of the Yarra Bridge in Australia, the Department thought it only prudent to satisfy itself as to the management organisation of the firm. This investigation was concerned primarily with systems in force for checking and keeping structural calculations and the arrangements between site and head office for dealing with engineering problems. There is no similarity in any respect whatever between that investigation and the one which I have now set in train. Freeman Fox and Partners continued in the Department's employ during the investigation, which was carried out by a team drawn from an independent management consultant firm and officers of the Department. The outcome of the investigation was that, following some changes in the firm's methods of checking and maintaining calculations, the Department was satisfied.

I wish to deal briefly with the hon. Lady's point that I did not take the opportunity to see Mr. James to discuss the matter. I have with me a note of the minute. The hon. Lady rightly said that I was advised by the Treasury Solicitor. The point at issue was that as the decision to take the course asking the Director of Public Prosecutions to take a hand in the matter would be taken by the Secretary of State or by one of his Ministers, it would be inappropriate for any of the Ministers concerned to meet any of the people involved. That in no way removes the independence of the Minister. We were not at that stage becoming involved, nor were we competent to become involved, in the pure technicalities of the matter.

I think it would be inappropriate for me to say more at this time, except to reassure the House of my very firm personal resolve to see that all the facts are brought to light. I am glad that this debate has taken place, since it has brought forward more information. I assure the hon. Lady and my hon. Friend that justice will be done and that taxpayers' money will not have been paid out improperly under the contract.

Question put and agreed to.

Adjourned accordingly at eleven minutes to Three o'clock a.m.