MEA Select Committee - Mike Proffitt - Hero or villain? (Part Two)

On Thursday 8^th May the Select Committee took evidence from Ian Thompson, former Capital Projects Co-ordinator, Mr Alan Teare, Capital Projects Officer and Mr Clive McGreal, former Chief Internal Auditor and now Financial Controller.

 

Mr Thompson recalled that when he first joined the Capital Projects Unit he was concerned to discover there was nothing in the files regarding MEA projects; this was despite Mowlem (northwest), who were the main contractor for the Peel power station, being in dispute with the MEA.

 

Committee Chairman, Steve Rodan put it to Mr Thompson that they had heard from him about a catalogue of non-compliance and lack of co-operation, which appeared to go on for a number of years; and wanted to know how Treasury had reacted.

 

Mr Thompson said that Treasury were aware of his concerns, and that this was formalised when he sent a paper, prepared by him and Mr McGreal on the Pulrose power station tender, which highlighted matters of their relationship with the MEA and compliance to regulations.

 

He pointed out that the appraisal of the incinerator tender had taken approximately a year, whereas the power station appeared to have been concluded over a weekend in a London hotel; not that he was inferring the process had been less than robust or resilient.

 

Mr Thompson said, to be fair, that the MEA had listened to some advice from the CPU, as a contractors bond, which had not originally been included in the contract, was added; which turned out to be a positive input as it was later called on for several million pounds. CPU had also suggested that the Attorney General’s office should review the contract, which also apparently took place, and resulted in a few suggestions to the MEA.

 

Other than that he said that the CPU was generally kept “out of the loop” by the MEA, which resulted in difficulties in trying to ascertain whether the Manx construction industry would be able to maintain, or be overwhelmed by, the level of work.

 

Mr Thompson recalled it was a period when there was pressure from one Minister, “with no holes left in the ground to fill”, pushing for an incinerator to be built and another Minister prophesizing “the lights would go out”; and that the Manx construction industry had coped very well.

 

Mr Butt returned to the issue of whether financial reports were being provided by the MEA and if there was any suggestion of an over-spend.

 

Mr Thompson said the reports were “erratic” in frequency and generally didn’t provide financial information. This had been of concern but when the matter was raised with the MEA the response was essentially “trust me, its going well”. As for an inkling of an over-spend, there was “none at all”.

 

Committee member Clare Christian queried the length of time it took for the Treasury to respond to concerns, and why they didn’t use their full powers to direct the MEA.

 

Mr Thompson said that he believed that Treasury had responded to concerns, the Attorney General had been consulted, but all this had achieved was all out war between the Treasury and the MEA. In fact it led to Mr Proffitt issuing an instruction that the Treasury was to have nothing to do with MEA schemes, he said.

 

Mr Rodan wondered what stance the DTI was taking at this time; to which Mr Thompson replied that they were looking at the issues from “both sides”. In Mr Thompson’s opinion the DTI was more interested in getting electricity produced. “They were neither supportive nor attacking us” was his assessment.

 

He went on to say that nothing really changed, despite some pretty robust discussions between the parties, but “the underlying thing was that the project was progressing”.

 “So the ends justified the means” type of approach was being applied, suggested by Mr Rodan.

Mr Thompson said he didn’t think that was the view of Treasury.

 

Was it the view at a political level, Mr Rodan wanted to know, but Mr Thompson just replied that he thought there had been a willingness to get MEA compliance; and, although promises had been made by the MEA, he did not know if it had ever happened.

 

Mr Butt referred to an email, sent to Clive McGreal, where he was pointedly raising the issue of the lack of information from MEA, and what would they say, in the future, if they were ever questioned, by the Public Accounts Committee (PAC), about what they had done about it.

 

“And by Select Committees” remarked Mr Thompson, before adding that there was a certain mindset, among some people, of “I believe everything is ok, so everything must be ok”.

 

He continued, that Mike Proffitt had said he didn’t need two project managers on his scheme; and there was one particular politician on the PAC, who he didn’t name, who he claimed had said “why do you want to interfere when everything seems to be running ok”.

 

Mr Rodan referred to another email, regarding a stage 10 report, sent in 2003, this time from Clive McGreal, in which he said he had “confined the information received so far to the shredder as it was worthless” as he couldn’t confirm anything in respect of procedures or financial regulations.

 

Mr Thompson confirmed a stage 10 report was never seen by Treasury, and wasn’t sure if an in-house version was produced by the MEA; not that he thought they would have been in a position to produce one.

 

Committee secretary, Mrs Cullen inquired if the CPU was asked for advice, by the MEA, when Enron collapsed.

 

Mr Thompson reiterated that the CPU was not included ‘in-the-loop’, so not only were they not asked for advice they were not even informed initially of the collapse of the company.

Having informed Mr Thompson that the time allotted for him had expired, and that he may be recalled, the Committee invited Mr Teare to give his evidence.

 

He commenced by referring to the procedure notes for capital projects stating, it was abundantly clear that they applied to statutory boards of government, that the Water Authority had produced their own version of the notes to fit their particular circumstances; and that other boards should have done the same.

 Mr Rodan wondered what purpose the liaison meetings between the DTI and the MEA had served.

Mr Teare said that they allowed the DTI to “keep abreast with business” and, although they were supposed to be monthly they were more like ‘irregular’ quarterly meetings.

 

Mr Rodan asked who compiled the Agenda and whether the CPU had a right to include items for discussion; to which Mr Teare confirmed they could ask for capital projects to be included. However, he added that he did not always attend these meetings, and on two particular occasions he was specifically asked not to attend; but he could recall some information filtering through, from the DTI, which claimed the project was on time and on budget.

 

Mr Butt referred to an email he sent to Ian Thompson - stating that he had sent a copy, to Mike Proffitt, of the guidance notes on capital projects, informing him that they applied to the MEA - and wondered what he did about his subsequent concerns.

 

Mr Teare explained that Mr Thompson had noted his concerns and reported on them; but to no avail.

 

Mr Butt followed this by seeking confirmation from Mr Teare of his recollection of what Mr Proffitt had said at one of the ‘monthly’ meetings.

 

Mr Teare recalled that at one meeting, in late 2003, attended by him, Dave Moore, Mike Proffitt and Chris Corlett, CEO of the DTI, he was taken by surprise when Mr Proffitt, quite candidly, stated that the Treasury would not be supplied with any financial information whilst he was CEO. Previously, said Mr Teare, he had been extremely careful what he said at the meetings; and he was confident that his note, of what was said by Mr Proffitt, was accurate.

 

Mr Rodan inquired if this was the end of the matter, to which Mr Teare replied that eventually some information was supplied by Mr Proffitt, via the DTI, but he considered that this was only provided to “get Ian Thompson off his back”.

 

Mr Rodan then referred to correspondence with Colin Kniveton where he was suggesting that the MEA would be able to take ‘the moral high ground’, by having attended meetings with the Treasury and, thereby, ‘put them in the clear’, and calling for COMIN to issue the MEA with a ‘direction’; and he wanted to know if he received a response to this point.

 

Mr Teare stated that it had been decided it would “upset the balance”; particularly as other things appeared to be happening.

 

In bringing the questioning of Mr Teare to a close, Mr Rodan inquired what was happening, particularly at meetings regarding the fibre optic cable.

 

Mr Teare replied that Mr Proffitt was “very bullish about ‘lighting’ the cable” and appeared “very aggrieved at Treasury” for holding up the ‘lighting’ and for not giving the MEA the opportunity to get on with it. He added, that he thought Mr Proffitt felt that the government was being “obstructive” and that he stressed the importance of the income stream, from the cable, for the MEA.

 

Final witness for the day was Mr McGreal who, first of all, apologised that the two other witnesses, scheduled to give evidence, later in the day, would be unable to attend as they had left the Island on important government business. This was accepted by Mr Rodan, as was the rearranged date for Mr Shimmin and Mrs Williams to attend.

 

Mr Rodan put to Mr McGreal that a Treasury minute, from September 2001, chaired by then Treasury Minister, Richard Corkill, and attended by Mike Proffitt, made it clear that the MEA was to adhere to capital project procedures; and that a meeting would be arranged with the internal auditor. He wanted to know what the result was of the agreed review.

 

Mr McGreal stated that when they met again, in November, work was still in progress and this was then followed by the ‘hiatus’ of the Enron collapse. When it was picked up again, in May 2002, a report followed in June saying that the MEA was not in compliance; and a letter would be sent to the DTI and the MEA to remind them of their obligations.

 

Mr Rodan then referred to an email from Ian Thompson saying he was not getting any financial information despite promises that he would; and inquired what his response was.

 

Mr McGreal said he supplied some ‘model’ reporting forms to Mr Dewar, his opposite number in internal audit, at the MEA.

 

He said that an internal audit wasn’t considered necessary at that stage because Mr Dewar was already involved in the exercise and he expected to have an opportunity to review the work. However, he pointed out that this was well before there was any suggestion of additional borrowing being required; not that this scenario had ever been contemplated.

 

Asked, by Mrs Christian, if meetings were held with Mr Dewar, Mr McGreal responded that he had gained tacit approval the CP guidance notes applied to the MEA; and would be complied with.

 

So what did the report say when it finally arrived 9 months later, inquired Mrs Christian.

 

That the MEA didn’t comply with the capital project procedure, was Mr McGreal’s frank reply. He added, following a further question from Mrs Christian, that as a result of this he and Ian Thompson conducted a review which resulted in a few minor amendments to the procedure notes.

 

Mr Butt wondered what may have been said at one particular meeting which may have led to the MEA to think the CP guidance notes didn’t apply to them.

 

“Nothing at all” was Mr McGreal firm response.

 

Mr Butt queried whether the term ‘guidelines’ had anything to do with it, but Mr McGreal said they came from the Financial Regulations, so there was no doubt to their standing.

 

Mr Quirk wondered if the matter was at the ‘top of the political agenda’ for the Treasury.

 

Mr McGreal confirmed that the ‘political view’ was supportive; and this had escalated, post June 2002, to include correspondence from the Minister to the MEA.

 

Mr Butt, noting that Mr McGreal was not part of the CPU, wondered why Mr Thompson was sending him emails; to which Mr McGreal replied that it was possibly in order to get a two-pronged approach to the attempts to persuade the MEA to comply.

 

In response to Mr Rodan saying that, in the lead up to July, a ‘direction’ was on the cards, Mr McGreal said he had expected something to happen, and mentioned correspondence between the parties, but that this had resulted, subsequently, in the ‘direction’ being withdrawn.

 

Mr Rodan confirmed it had been withdrawn, on the advice of the A.G., and that it had been agreed that a ‘working party’ would be established. Mr McGreal couldn’t entirely recall what had happened, but did think Mr Shimmin had tried this route and that the message had come back that Mr Proffitt was not prepared to co-operate.

 

Rather understatedly Mr Rodan suggested “So things didn’t really change” and Mr McGreal agreed that was more-or-less the case.

 

Mr Rodan wanted to know what the reaction was at political level to the fact that things were “dribbling on as before”.

 

Mr McGreal pointed out that it had gone to political level so he wasn’t in a position to say.

 

Mrs Christian inquired what Mr McGreal’s reaction was to the withdrawal of the ‘direction’ and the lack of change to the working relationship.

 

“Frustration” was the reply.

 

Mr Butt asked if, as Chief Internal Auditor, he had the power to “go in anywhere in government”; to which Mr McGreal said he did, but that he doubted it would have served any purpose. He told the Committee that the MEA had an internal audit department, who he said were in a better position than him to conduct an audit of expenditure.

 

Mrs Christian put it to him that surely the MEA’s internal audit should have been able to identify any overspend; and asked if he thought they should have been reporting to him.

 

Mr McGreal said that, although there were no formal reporting arrangements, he would have expected them to report to him on the power station expenditure. He continued, in response to a question on whether a more formal arrangement was needed, that Mr Dewar was under pressure not to consult with internal audit; and, even though he had made himself open and approachable, contact had not been made.

 

Mr Rodan tried to theorize on what may have happened if the ‘direction’ had been issued or the working party established; and whether the additional borrowing, or financial position of the MEA, would have been picked up sooner.

 

Mr McGreal thought this conjecture as, even if the working party had been established, he wasn’t confident, on the past performance of “avoidance and obstruction”, what information would have been provided; so it may not have been, he concluded.

 

He confirmed, to Mr Butt, that he had not been instructed to “back-off” once the ‘direction’ had been withdrawn; although he was well aware of the legal advice received by Treasury.

 

Mr Rodan asked once the “cat was out of the bag” in November 2003, and KPMG had requested a ‘direction’ be issued to the MEA to produce a set of accounts based on a “true and fair view” basis, did COMIN issue that ‘direction’. Mr McGreal replied that it was his understanding it had not been necessary; as the preparation of a set of GAAP accounts was acceded to by the MEA.

 

Mr Rodan put to Mr MGreal that he had expressed a concern about the lack of political representation on the Board of the MEA; and he agreed that he had thought that this was a contributory factor in what had happened.

 

Next Mr Rodan wanted to know if the guidance notes had been amended in response to the ‘MEA Affair’; but Mr McGreal said, in short, it wasn’t really necessary, as the change in regime, along with the culture change and a better relationship, was all that was really needed.

 

Mr Rodan still thought that there was potential for the same thing to happen again, to which Mr McGreal said he couldn’t guarantee it wouldn’t happen again; but pointed out that if people worked within the spirit of the regulations there wouldn’t be a problem.

 

In effect, despite Mr Rodan’s apparent desire for an answer that the regulations did need changing, Mr McGreal maintained that, if you had the right person in post, changes were not needed.

 

In winding up the session, Mr Rodan returned to the issue of former Board members asserting that the borrowing, in excess of £185m was known about; but Mr McGreal responded that as far as he was concerned there was no evidence to support this view.

 The rearranged public sessions, at which Mr Shimmin and Mrs Williams will be giving evidence, will be held on the 29^th May 2008.

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