That incinerator contract: All of us are to blame

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So because you are not in the ‘front line’, you are ripe for culling. If you survive that and then make a mistake, well the Wrath of God will descend upon you.

So it was with obvious glee that the critics of the States hit upon the currency exchange disaster on the new energy-from-waste plant contract.

Now anything to do with the new incinerator is likely to be a hot potato (!) and the current fuss over the contract certainly seems to highlight several failings in the Treasury department. In particular, the failure to fix the exchange rate of the euro part of the contract and some events leading up to that are not to be excused – even if the States critics would allow us to do so.

However, there are mitigating circumstances which have not figured in the debate so far. Certainly if critics were to take a more balanced view they would see that at the end of the day the problem was not with a few civil servants and their political masters but all of us to some extent.

It would be far too simplistic to try to counter the criticism (and we’ve only heard one side of the story so far) by saying that we are all human and we all make mistakes. That’s undoubtedly true and while we can have some sympathy with those who make mistakes, taxpayers might have to spend more money because of this – perhaps several millions of pounds – and that is a most heinous crime in the minds of many people.

But there is more to it than a simple (or as it turns out, pretty complicated) mistake. The critics will say that it shows widespread failings within the department. If that is so, then obviously they must be dealt with. But we have to also ask why there were failings, and perhaps the answers will give a fairer picture of how the mistakes came to be made.

Certainly it should provide a more reasonable hearing than the critics have given the case so far. They always seem to know the difference between black and white, but can’t seem to recognise any shade in between.

With the incinerator contract there appear to be a lot of mitigating circumstances which a fair-minded person would see as contributing to the problems.

To begin with, as the Comptroller and Auditor General mentions in his report, but which has been ignored by most, it’s not every day that the Treasury has to deal with a £100m contract. Nevertheless there doesn’t appear to be any problems with the way the department handled the complicated process, until we get to the currency risk.

Now it certainly isn’t every day that the Treasury has to deal with a multimillion-euro contract, which is a large part of the overall project. Perhaps surprisingly we don’t buy a lot of products and services in euros.

So it is equally not surprising that there is no expertise in house at the Treasury in this arcane subject. Why would there be if it isn’t regularly used? You know what States Members and the public say about a bloated civil service. No department head is going to employ any skills that are not absolutely necessary.

So consultants had to be used, and you also know what the public says about the States spending money on consultants. A good public servant, therefore, isn’t going to rush into paying for outside help if he can avoid it.

In this case it appears that some advice was given, some of which appeared to be good advice in hindsight. At the time, of course, any advice about how to hedge the currency exposure and when had to be weighed against a number of other factors, not least the cost of each option.

Unfortunately with the wisdom of hindsight, the wrong choice appears to have been taken, certainly according to the CAG’s opinion. But a decision had to be made and a judgment taken which the Treasury officials believed to be in the best interests of the Island (at least no one has suggested that this wasn’t always their goal).

And it was a difficult judgment to make. No one has really commented on the extraordinary bad luck of the Island being about to sign a huge contract with a large currency exposure, just as the foreign exchange markets were going crazy. It was not as though the decisions about currency were being taken calmly during a time of orderly markets. The pound was plummeting against the euro, and no one was predicting what would happen next. At times like that even the experts are not much help, but the contract still had to be signed.

The CAG in his report says that the Treasury should not have been in a position where it had to gamble on the movement of the exchange rate. Perhaps the currency exposure could have been decided a fair time before the contract was due to be signed.

This would certainly have avoided the subsequent problem, but it would also have cost a lot of money. Had the money been spent and the exchange rate had subsequently gone in our favour, then the CAG would no doubt have been one of the first to point out that money had been wasted.

That’s why we’re all to blame for this disaster. We’ve helped to create a culture where public servants have to worry about every penny that is spent, and we constantly complain about waste in the States. It is certainly right to insist on value for money but we sometimes forget how difficult a job it is that many public servants do (with very little thanks from some members of the public or States Members).

It’s even more difficult if they constantly have to worry about making a mistake that will cost money. That means public servants will do what they can to save as much as they can, even if it means delaying hedging the currency element in a contract.

But some States Members contributed to the disaster in more direct ways. The battle over the EFW plant and whether the signing of the contract would be delayed only caused further problems for the Treasury department. After all, it’s a bit difficult to arrange currency hedging on a contract which could be three months or more after the date originally proposed. Even the total amount of the contract was uncertain until all the planning changes had been agreed.

A charitable person might think that it’s hardly surprising that errors in judgment were made in such an environment (if indeed errors were made) and that any shortcomings were the result of lack of resources.

That means States Members have to take some of the blame, and of course, we all know who put them there.

Peter Body is editor of Business Brief magazine

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