UK Passport Contract

Michael Meacher Excerpts

Thursday 2nd December 2010 Commons Chamber

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

For the past 40 years, the British passport has been produced in my constituency, first by Her Majesty’s Stationery Office, then, when it was sold by the Government to venture capitalists, by Security Printing and Systems Ltd and, more recently, by 3M, which acquired the latter company in 2006. 3M has, to date, invested more than £20 million in the facility. I should add that the British passport is an intensely technical document, which has more than 120 overt and covert security features, ranging from reflective inks and holograms to features that only a trained eye or forensic examination can detect.

Having 40 years’ experience in producing this highly technical product to consistently high standards is no mean feat, and it was therefore gratifying for the staff at the production facility to learn that the Identity and Passport Service was rated as the top-performing public sector organisation by its customers. The survey carried out by the Institute of Customer Service was based on responses from 26,000 members of the public, who rated the IPS above names such as Royal Mail, the Driver and Vehicle Licensing Agency and the Post Office. The chief executive of the IPS, Sarah Rapson, said on 13 April:

“This is a great confidence boost and confirms yet again that we have strong foundations in place to deliver the exemplary service we provide to our customers.”

How strange then that the Home Office is willing to dispense with that 40-year track record and put at risk the strong foundations to which Sarah Rapson was referring by taking the contract away from the incumbent and placing it with a company, De La Rue, whose track record in producing passports is limited and whose experience in producing passports to the volumes required by the UK is non-existent.

The appetite of Britons for overseas travel is as strong as ever and more than 6 million British passports are produced a year, the vast majority of which are renewals. The current set-up and production capacity at the facility means that, on average, passports are delivered to customers in a matter of days after the submission of their completed application. The quality is consistent, and quality assurance procedures are rigorous and regularly audited. I can say without risk of rebuttal that De La Rue, to which the British passport has been entrusted, has no great track record in the production of this quantity of passports.

It is well documented—I do not wish to dwell on this but it has to be said—that De La Rue has not exactly been short of problems this year. Its chief executive resigned in June following production issues at its banknote paper plant, which involved its employees falsifying documents—the Serious Fraud Office is currently investigating that little matter. Another SFO inquiry took place in 2007, during which the homes of employees were raided, and the company has also faced accusations of fraud in Kenya and price fixing in the US in the past 10 years. One has to ask whether this is really a company to which we should entrust the production of the British passport.

Let me turn to the awarding of the contract with De La Rue in June 2009 and the circumstances surrounding it. As has regrettably become the case in large Government procurements, this process is tortuously complicated and prolonged. Consequently, it is extremely expensive for the participants and for the person paying the bill, which in this case is the taxpayer.

There were a number of unsatisfactory elements to the procurement that in my view seriously call into question the integrity of the entire process. The first, which was well documented in the media at the time, was the role of Gill Rider, a non-executive director of De La Rue who was also an official in the Cabinet Office responsible for the recruitment of senior civil servants. One of the civil servants whom Gill Rider had a hand in recruiting was James Hall, who at the time of the procurement in question was the chief executive of the Identity and Passport Service. Another was Bill Crothers, who was the chief operating officer of the Identity and Passport Service at the time of the procurement. James Hall and Gill Rider had been colleagues together at Accenture for many years before joining the civil service, while Bill Crothers was also a recruit into the civil service from Accenture.

I accept that Gill Rider stood down when the matter was raised in the Home Office, but not before, and that was two thirds of the way through the two-year procurement process. Furthermore, she remained a shareholder of the company throughout. In addition, representations were made to me immediately after the announcement of the tender result in June 2009 by 3M, which said that it had found some of the processes used in certain phases of the procurement to have lacked fairness. It is only fair to add at this point that 3M was somewhat reluctant for me to secure this debate, because of its fear that raising such matters could compromise its relationship with the Home Office, a customer with which it has always had a tremendously strong relationship. I want to make it clear to the Minister that the reason I have done so is that the Government are unaccountably playing down or disregarding an enormous financial gain to the Exchequer—more than £100 million—at a time when they are also saying that colossal spending cuts have to be made, which seems perverse to say the least. Also, a large number of jobs will be lost to the UK—probably more than 100—at a time when the Government are desperate to stop unemployment rising, which again seems perverse.

Another disquieting aspect to the procurement process was the fact that former De La Rue employees sat as part of the technical selection panel on the bid. That surely cannot be right. Those people—presumably they were holders of deferred De La Rue pensions—should surely have been excluded on the grounds of a conflict of interest. In addition, on each occasion during the competitive dialogue phase, when each company had to express and present its ideas, 3M was asked to present before De La Rue. I do not want to make too much of that, but there was no drawing of lots or any other randomising procedure to balance out the advantage at a particularly sensitive stage of the process. I would add that, frankly, I am dissatisfied that the senior officials advising the Minister on our representations to him about a retender were precisely the same as those who were involved in the original reallocation of the contract. To me, that does not exactly suggest a genuinely independent re-evaluation of the issues. I mention these matters not to rake over the coals, but to explain and justify my strong belief that the original procurement was seriously flawed and that the new, non-exclusive passport contract should be retendered.

On 14 July, George Buckley, the chief executive officer of 3M wrote to the Home Secretary to make the case for retendering the contract. That offer was made—I think one can readily admit this—in response to the difficult economic circumstances that the country faces and to the call by the Government for proposals to save money. The offer was to reduce the cost of the new contract by £100 million over the life of that contract. That included savings from the change in Government policy on having secondary biometrics within the passport. In the current circumstances, £100 million is not a sum to be sniffed at. It is not far short of 1% of the entire reduction in spending cuts that the Government hope to make in this fiscal year; a reduction of that magnitude cannot be dismissed or disregarded.

On 4 August, a perfunctory letter—I say that with feeling because I have seen the letter from John Collington, a Home Office official and yet another Accenture employee—failed to acknowledge the new, reduced contract offer. That was not only negligent but dismissive, publicly indefensible and even contemptuous. On 15 September, accompanied by some members of 3M’s management, I met the Minister—I am grateful to him for that—to discuss a new cost model for the new UK passport contract. At that meeting, the same offer was made again in detail and was subsequently confirmed in a letter on 17 September from 3M’s UK managing director Jim McSheffrey.

The commitment was to reduce the cost of the passport contract by £100 million—from £400 million, where it is today, to £300 million for the 10-year-period. That was achievable due to the change in specifications, with secondary biometrics no longer being required on the UK passport, and by allowing costs to be spread over a number of future international contracts. I am fully aware that the Minister is sceptical that a saving as high as £100 million can be achieved, but my answer is that, although I cannot go into details now, for reasons of commercial confidentiality, the detailed breakdown of that £100 million is provided in specifics and in full in the letter of 17 September, which, of course, the Home Office has.

On 28 September a reply to 3M’s offer letter was written by the Minister’s Department and sent under his signature. I note that I was not copied into the reply, despite having instigated the meeting, but I shall not make much of that. The reply says that there is no

“convincing argument to change current arrangements”.

There is an ample case to be made for retendering the contract. The risks—given that there is an incumbent supplier still in place that is able to produce at volume—are minimal. Also, 3M produces all UK passports in the UK, thus maximising UK jobs and minimising the security risks of transporting blank passports from abroad, whereas De La Rue proposes to produce a proportion of the passports in its production facility in Malta.

If the contract goes ahead without retender, more than 100 jobs will be removed from the current operation. I understand that only a tiny fraction of those employees will find employment under the new contract. In addition to the £100 million that will be lost to the Exchequer if there is no retender, there will be a further cost to the Exchequer of more than £5 million in severance payments.

As the Minister will be aware, the current contract with De La Rue is on a non-exclusive basis, which means that it can be terminated at any time. A retender could be completed at minimal cost—and rapidly—to gain the benefits to the UK taxpayer of a lower cost contract. It is also the case, as the Minister will again be aware, that there is a requirement to benchmark the contract against other potential suppliers to ensure that the UK Government are receiving, and continue rightly to receive, value for money. That means that the Identity and Passport Service is required to check periodically throughout the life of the contract that it is receiving value for money.

In that context, on 5 October, De La Rue was due to start producing passports in volume. However, although it did produce its first passport on the day due, there has been a need for 3M to continue to produce the UK passport at normal rates owing to a significant slippage in the agreed programme on the part of De La Rue, despite the project delivery dates being a key part of the evaluation. As of today, most of the 3M employees on the contract remain, because the facility is still running at normal volumes, but within a few weeks, presses at 3M will get turned off for the last time. I do not think we can avoid the conclusion that the new contract has been unable to produce passports at the volumes required.

The Government have entrusted, under circumstances that I find deeply dubious, a critical piece of the national infrastructure—the production of the nation’s passports—to a company seemingly incapable of doing the job. I do not want to have to take this matter further with the Select Committees of the House, but the Minister should retender the contract before the Government lose £100 million of savings and the country loses more than 100 jobs.

[The Minister for Immigration (Damian Green)]

I congratulate the right hon. Member for Oldham West and Royton (Mr Meacher) on securing this debate. Given that he made the point himself, I am sure that he will understand that it would be inappropriate for me to discuss detailed areas of commercial information at the Dispatch Box.

I appreciate that the right hon. Gentleman is rightly concerned about the impact on jobs in his constituency. That is understandable and right—any Member of the House would feel the same. The loss of jobs anywhere is to be much regretted. As he said, the passport has been produced in his constituency for the past 40 years. I congratulate 3M and the predecessor companies on the work they did on the passport, and I am happy to reassure 3M that nothing the right hon. Gentleman has said will alter my or the Home Office’s attitude to it in any future Government business for which it tenders. We treat all potential procurement exercises fairly and equally, and we look at the competence of those involved and the price they are charging. The right hon. Gentleman is correct also that the Identity and Passport Service provides an extremely good service.

At that point, however, I parted company from much of what the right hon. Gentleman said. He will be aware that the contract for the printing of the British passport was granted under the previous Labour Administration, and I have no reason to believe that the tender process was anything other than fair and subject to open competition. He prayed in aid of 3M Sarah Rapson, but he will be aware that she became the head of the IPS only in recent months, so all the decisions he is talking about, and everything he is complaining about, happened before she became head of the IPS and said what he quoted her as saying, apparently in aid of his argument. At that time, 3M Security Printing and Systems submitted an unsuccessful bid, and the contract was awarded to De La Rue. It was signed on 2 July 2009, and the service commenced in October 2010.

The right hon. Gentleman made an explicit attack on what he described as the integrity of the process. I want to make clear—as, I am sure, would he—that that did not entail an attack on the integrity of those involved. He took the opportunity to name a number of officials, but I am sure that he was in no way attempting to attack their integrity. That would be wrong, and it would clearly also be wrong to attack the integrity of the Minister involved. The right hon. Gentleman said that the process was wrong. He knows, as a former Minister himself, that Ministers are responsible for the process, so attacking the process would be attacking the Minister as well.

The right hon. Gentleman also said one thing that was simply factually incorrect. He said that all the senior officials involved were still there advising me, as a Minister in the new Government. That is not true. James Hall, who was head of the Identity and Passport Service at the time, has retired, which means that the most important official who was involved when the decision was made is no longer there. I think it important to put that on the record.

[Mr Meacher]

The point that I was making is that the senior officials who attended on the Minister when we made representations to him were closely involved in the original allocation of the contract. I did not say that all the officials who were originally involved were there now, but those who played a significant part are still there, and I therefore do not think the process is genuinely independent.

The Minister questioned whether I had been right to say that the process had not been fairly undertaken. I will not repeat them now, but I presented three, four or five arguments in my speech which need a precise answer rather than just “I am satisfied with the process”.

[Damian Green]

It is not very surprising that some of the officials who were at the IPS a year or so ago are still there. I can reassure the right hon. Gentleman that no single individual or, indeed, small number of individuals could have decided the outcome of the bid. More than 25 evaluators were involved in the process. I am sorry that, when he intervened on me, the right hon. Gentleman did not take the opportunity to make clear that he was not attacking the integrity of the individuals involved. I had given him every chance to do so.

As the right hon. Gentleman knows, I met him and representatives of 3M on 15 September 2010 to discuss their request for the contract to be retendered on the basis of the decision of the coalition Government to halt the second biometric in the United Kingdom passport. As I said then and will repeat tonight, I do not consider that either the right hon. Gentleman or 3M has presented any new information that would merit the adoption of such an approach. Nor, in particular, would it be appropriate to put at risk the continuity of the passport operation.

The right hon. Gentleman and 3M argue that savings of £100 million are to be had simply because the form of the passport has been changed through the removal of the second biometric. As I have said, I do not find that argument convincing. Moreover, as the right hon. Gentleman knows, the approach to me was made only a few weeks before the new passport operation was due to begin. The main principle that guides me must be the preservation of the safety, security, smooth running and smooth production of the passport service, and the consideration that the right hon. Gentleman is inviting discontinuity must bear heavily on me as the Minister responsible for the passport service.

As the right hon. Gentleman has admitted, the IPS achieves a high level of public satisfaction in the quality and security of the service it delivers. That relies on its ensuring that all parts of its operation work effectively and efficiently, in the best interests of the customer and the wider interests of the UK economy.

The right hon. Gentleman cast doubt on the process. Of course, the IPS followed the EU procurement regulations process, which was initiated on 19 June 2008 by the issue of an Official Journal of the European Union notice. The award of the new passport design and production contract was necessary due to the current passport contract expiring on 4 October 2010. The Identity and Passport Service announced on 11 June 2009 that De La Rue had won the £400 million contract to produce the new British passport book over the next 10 years. That contract commenced on 5 October 2010.

The De La Rue contract represents better value for money and introduces a new design and improved quality for the customer. In addition, the tender process allowed savings on print costs to be made in relation to the current contract. The IPS ensured that all bidders were offered an equal opportunity to compete against the incumbent supplier, 3M SPSL. The objective of the procurement was to complete a fair, transparent, robust, defensible and fully auditable evaluation exercise that ultimately identified the most suitable supplier to deliver passport services. The supplier produces a secure, high-quality passport, and provides production arrangements at a competitive price.

There are about 48 million passport holders in the UK, which represents 80% of the eligible population. The new supplier is expected to produce up to 6 million passports every year. The current length of the contract ensures that there is the right balance between the level of investment required, the need for good relationships to be fostered, and the need for the IPS to remain flexible and responsive to the way in which the market changes over time.

The procurement process over which the right hon. Gentleman has cast doubt was subject to detailed and thorough assurance from Home Office Commercial, the Office of Government Commerce and an external audit, including a National Audit Office review to ensure that an objective assessment was reached. The awarding of the contract was based on which supplier offered the best overall solution and value for money, measured against a clear set of evaluation criteria, of which 3M was fully aware and against which it performed during detailed competitive processes.

[Mr Meacher]

The Minister is talking entirely about the award of the contract. I accept that I made comment about that, but the thrust of my argument was not going back over the past, but looking to the future, and the fact that 3M is offering a £100 million reduction in the cost, which is more than highly competitive and would avoid the loss of 100 jobs. Will the Minister please concentrate his remarks on why that is not acceptable, even if it requires a retender?

The Minister wants me to make a comment about integrity. I referred to the integrity of the process. I did not refer to individuals, but I do think there are serious issues about the conflict of interest of the various individuals to whom I referred.

[Damian Green]

I am grateful for the right hon. Gentleman’s clarification of what he is getting at when he speaks of integrity. I can only observe gently to him that the background of those who were senior in the IPS over a year ago was well known to him and to everyone else at the time. If he is so disturbed about it now, it might have been more useful to his cause to have pointed that out at the time to a Government of whom he was a supporter.

In a sense, that is irrelevant, because any Minister of any Government would try to make the best decision, but if the right hon. Gentleman is disturbed about the process and about the senior officials involved in it, the time to make that point is before a decision is taken, not a year afterwards. As I say, I have absolutely no evidence to suggest to me that anyone involved—the Minister or any of the officials—in a process which clearly I had nothing to do with, deserve any shadow cast over them. The right hon. Gentleman is making such an implication now. All I can sensibly do is observe that it might have been more helpful to his cause if he had made that observation at the time.

The right hon. Gentleman makes the point that 3M says that it could fulfil the contract now for £100 million less. As I have said repeatedly in private meetings and again this evening, I have seen no convincing evidence that backs that up. Again, 3M was given the opportunity to bid for the work at the time. The reasons that it was unsuccessful were fully explained to 3M. There is no economic reason why the IPS should seek to put its operation at risk by reopening a contract that is up and running and working effectively.

I have to end on that point, because that is the most important point for me. I must be responsible for an effective and efficient passport service. Asking me to put at risk—