Friday, July 4, 2008

Government waste - an example....

I was slightly distracted from my main task by responding to a couple of comments (though I am happy to have the comments to respond to...).

In one of my previous post I suggested that I would describe my experience in a government funded scheme to 'help businesses' as part of my discussion of structural economic problems. If the examples I give are typical (and I think they are), it should give us all cause for concern. This is how tax money is being used. This is a part of the structural cost that is imposed upon the UK, the kind of cost that is multiplied many, many times over. I can only talk of my limited experience, but I hope that this is sufficient to highlight a terrible waste of money, and raise doubts in your mind about how efficiently the UK government operates.

Before starting, some of the people that I worked with were nice people, so the example I am providing will have some alterations. My reason for this is that I would not want to harm my former colleagues. For the most part, they were honest and decent people. I will try, as much as possible, to tread a line between the principles that were involved without ever being specific enough to pin down the organisation involved.

The organisation that I will be discussing is a university that was provided funding for a project to improve IT in business. The funding came from the EU and various UK government bodies and was valued at £ millions. The purpose of the project was to offer free IT consultancy into companies in the area surrounding the university, provide technology demonstrations, and to assist in the launch of new businesses based upon technology flowing out of the project (the official aims of the project were dressed up in buzzwords, and sounded very impressive - I have translated them into normal language).

So far all sounds fine.

The reality of what actually provided is where the tale becomes sorry. The first problem was that most companies were not interested in the 'free' service that was provided. Those that did accept the service often did not value it, for the very reason that it was free. In many cases the service often involved one of the team members building the company a crude website, something that should have been undertaken by a commercial website designer. As for the technology demonstrators, these were often poorly attended, and in any case were mostly pretty crude. The problem was that many of the 'team' were not particularly knowledgeable about IT in business. There were no new businesses formed as a result of the project.

The project was, in reality, even worse than this bleak picture.

One problem was that another university (with a better reputation) was involved in the bid process, and was key to the provision of the funding. Part of the deal was that they would provide the technical support for the lifetime of the project. The amount of the grant allocated to them was about £500,000. the only problem was that this was not viewed as a real commitment of support from this university, but a quasi-commission for helping in getting the project. Universities unofficially see such projects as profit centres, and the university I worked for was just supposed to be grateful for getting a large sum of funding. The result was that the university I worked for was to supposed to accept that the completely inadequate support provided was acceptable. This lack of support was one of the (many) reasons why so much of the work was of such low value. The project itself had only one genuine IT specialist, so the support was essential.
I am not sure that it would stand up in a court of law, but the actions of the other university were close to fraud - obtaining money through deception, as it was clear that they never intended to honour their commitment and planned to use the money for other activity.

It was not just the other university playing fast and loose with the funding. The university I worked for had a raft of people on the payroll who actually were not involved with the project. Some were people working in the university but I was also told, though I never saw 100% confirmation of this, there were two individuals on the payroll who had retired. The university, in other words, was using the project to subsidise other activities and people and, if retired people were being paid for out of the funds, then the word 'fraud' comes to mind.

As I said, it is a pretty sorry story.

I came late to the project and, after a couple of months, it occurred to me what the project really meant. A group of inexpert people were sitting in a university, being paid from taxation, to help companies do what they in any case should be doing. In other words, the taxation taken from good companies was being used to subsidise (in many cases) bad companies. Not only that, but the money was being used in largely ineffective interventions (not all that was done was ineffective, but much of it was). Not only that, but large sums of money were being diverted (possibly illegally) into other areas of spending.

All of this was audited at the end of the project, and no problem was found. Despite the poor performance of the whole project in reality, it was assessed as a success. It had met the required 'outputs'.

As if this were not all bad enough, we need to think about the £millions that was spent on this ineffectual activity.

I will take a little detour into the subject of obtaining government funding with a story of my own bid for funding for a research project. I relate this because the headline cost of a project is only a part of the real cost, and I will give a feel for the additional (hidden) costs involved. I can not give precise details, as I no longer have access to them. However, you will be able to get a feel for the kind of money involved.

In the case of my bid the process itself was so complex that the university had hired outside specialist consultants to advise on how to place the bid. This kind of bid usually requires many months of preparation, but due to time constraints I managed it in a few weeks. Having gone to all of the effort, I submitted the bid and met the bid quality thresholds. At this point I was discreetly told that the bid had no chance as the research had already been allocated to another organisation. In other words the bidding process was a sham. Apparently the real method of winning the bid required expensive trips to conferences at which it was necessary to 'schmooze' the right people. This was informally discussed within the department, with the question raised as to how we could fund such trips into Europe so that we could get our 'foot into the door' of such funding.

In another case I attended an event on how to gain UK government funding. The seminar was presented by government officials in the conference room of York racecourse. About 50 -60 people attended. The interesting thing about this seminar was thinking about what it cost overall. Most of the people who attended were executives/senior managers in companies or senior researchers from universities. If we were to add up the total cost in terms of the people attending, many of whom would have stayed overnight in a hotel, travelled a long way, we can make a very conservative estimate of £60,000 in costs for attendance. In addition to this we would need to add the management and promotion of the event, as well as the administration and so forth. My best guess is that the day represented a total cost of nearly £100,000. That is a considerable amount of money, and just to find out how to better apply for grants. Such conferences, seminars, formal classes are necessary to get into the business of obtaining government funding. Specialists have to be trained, administrators put in place, and a whole support infrastructure needs to be created.

Once an organisation actually starts to apply for any government funding for a project, the process then gets really expensive. All of these funds, to differing degrees, require extensive documentation in order to make a bid. In the case of my very small bid, it required just under 40 pages of documentation, and detailed costings provided by the administration department of the school in which I worked. And this was not a bid for a major project, but just a small element of research. If I was to guess at the cost of submitting this small bid, including the meetings the consultants, the seminars, the time of the administration and finance staff, and so forth....My best guess is something in the region of £10,000. The value of the project was relatively small - in the region of Euro 300,000. My bid preparation would be exceptionally low cost, as I undertook most of the work myself, and managed to do it in a very short time (I was told that such bids normally took months and a small team working on it). It should then be remembered that, for each piece of funding, there are often many bidders. As such the cost of preparation is often multiplied several times.

It could be argued that this is very similar to any competitive bidding process in the commercial world. I point this cost out as an example of the hidden cost the kind of project on which I worked.

In addition to the costs involved in bidding, there is also the cost of tax collection, creating policy frameworks, and the cost of administration. To give an example of how costs can become inflated, a good indicator are Knowledge Transfer Partnerships (KTP). These are supposed to be a government funded method for a university to transfer expertise and research into business. The scheme works by a university hiring a recent graduate to work within a company, with the company paying a fixed cost of (if I remember correctly) £18,000 per year to the university. Along with providing the person, the university is supposed to offer support for the work of the person working in the company. The university write out a program of action for the application process, detailing all of the good things the university will do for the company. In the case of the one project I was involved in, the support for the individual amounted to very little.

Here is the shocking part. Universities are paid £120,000 for each KTP project. I will repeat this, the cost of a university of supplying one graduate into one company is £120,000 per year. In addition to this there is the cost of a large bureaucratic system to support the KTP projects. As such the real cost to taxpayers is actually far higher than is included in the headline figure. Unsurprisingly, in the project I worked in, we were encouraged to find any, and I repeat the word 'any', opportunity to introduce the KTP project into any of the companies that we dealt with. Whilst never described as such, the KTP projects were seen as a great profit centre for the university.

As I said, the headline costs are only the start of the real cost.

An interesting aspect of this period was to see how many other similar projects were being run. There was a veritable industry in providing tax payer funded/subsidised services to businesses. In nearly every case, I gained an impression of a lack of real capability (though I can not be sure, not being directly involved). In every case the kind of services being provided for free were services that could be paid for by hiring in consultants and commercial organisations. As such the services were often in direct competition with commercial services.

Once again, I go back to the idea that the tax payments of good companies are being used to subsidise the activity of other companies, often bad companies. My question here is how much money is being spent in this way? I think of the cost of applications processes, the cost of collecting tax, the cost of establishing the policies, the cost of administration, the cost of monitoring projects, and audit. I then think of the cost of administration within the projects, against the front line services delivered. I then think of what all this money is delivering - and then I despair.

The worst part is that, from my own experience, a project that performed abysmally was declared successful. From such assurances, more money flows. The point of this piece is not to criticise the individual projects, but to ask what kind of expenses are buried in government, and ask what these expenses are delivering which is of value.

The real point here is that this kind of waste is a real structural cost for the UK economy, and a cost that can not be maintained in such a competitive world. Quite simply, such a waste is a luxury that can not be afforded. Every £ of tax wasted comes from individuals or the profits of companies. When the government takes their money and wastes it, they damage the long term health of the economy. In the case of companies, that tax could have been spent by the companies themselves, and have been used productively in investment or expansion of their business.

End Note 1:

Having read this, I am not sure whether the message I am trying to convey is clear - perhaps the post is a bit incoherent? As such I would appreciate any feedback, as I am not entirely sure how this will read to someone who has not experienced the Alice in Wonderland of government funded projects.

End Note 2:

I was only working in this rather odd world for just over a year. During that time, I was genuinely shocked at what I saw. I did, on a few occasions, think of 'blowing the whistle'. However, I would have damaged not only the bad, but also some decent people who were just earning their living as well as they could. As such, after deliberation with friends, I chose to stay quiet. I am still not sure whether this was the right choice. Your opinions are welcome.


  1. Politician often talk about cutting waste in the public sector. It would be interesting to know whether the area you worked in would, or could be identified as a candidate for cuts. After all, all the measurements of its performance were good. You might know that the method of making the measurements was flawed, but how could someone on the outside understand that?

    Your post suggests that an awful lot of public sector employment is wasteful. I have heard people use the term 'rentier economy' to describe the UK. One characteristic of such a state is a high level of unproductive public sector employment designed to keep much of the population content.

    The thing I don't understand is what the resource is that we would be 'renting out' externally.

  2. Can there ever be value in economic activity for its own sake?

    In all seriousness, a friend of mine is half-convinced that if he drops litter, for instance, then as someone must be employed to pick it up, they will pay taxes and hey presto, in effect our schools and hospitals are paid for. He knows that you can't simply print money because it would become worthless, but that you can if you create a slighly useful job for someone to do in return. And when you consider that the 'real' economy apparently thrives on jobs like mobile phone ringtone development and crystal healing he might have a point. Presumably the jobs people do in the 'real' economy are justified because others are prepared to pay for them, but by any definition, many of them are pointless and wasteful. Even jobs which sound serious, like aircraft design, ultimately result in British aromatherapists going to New York for the weekend so they can buy a new pair of shoes.

    If I understand it correctly my friend's idea of job creation is dignified with the name "the Multiplier Effect" and is associated with Keynsian economics:

    Could your old civil service job in any way be justified in these terms?


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