Efficiency Scrutiny, Senior Management Review and Prior Options — a geological survey in transition

From: Allen, P M. 2003. A geological survey in transition. British Geological Survey Occasional Publication No. 1. Keyworth:British Geological Survey.

Chapter 14 Efficiency Scrutiny, Senior Management Review and Prior Options

There can few better examples of Government policy leading to a massive waste of time, money and emotional energy in an organisation for absolutely no benefit at all, than the Efficiency Scrutiny, the Senior Management Review and the Prior Options Review. This series of exercises, which had its origins in the White Paper Realising our Potential: a Strategy for Science, Engineering and Technology (Cmnd 2250), published in 1993, began in December 1993 and ended in January 1997 when the Government abandoned Prior Options to focus on the coming general election.

The 1993 White Paper was followed by what was called a review of the boundaries of the research councils, led by Sir David Phillips. This resulted in their being restructured. Out of it emerged six research councils, two of which were new. There were revised or new Royal Charters for them, new missions, the re-introduction of part-time chairmen, and a new post of chief executive. These were to take over the responsibilities of the previous full-time chairmen and secretaries to Council. For the NERC, there was also a new internal structure. A single Directorate of Science and Technology replaced the three science directorates, within which the NERC’s in-house scientific capability and university research funding had been managed since 1985/86. There was a concomitant decrease in the number of Grade 3 officers at NERC HQ in Swindon. All the component institutes were reshuffled and some were merged to make up four research bodies that came to given the generic term Centre/Surveys. These new creations were roughly equal in size and their Directors were equal in rank. In all of this, both the BGS and the British Antarctic Survey remained essentially untouched.

This new structure gave greater freedom to the directors of the new Centre/Surveys, though it did not go so far as to include them within Council, which, as executive directors with multi-million pound budgets, they had long thought they should be. There was also a weakness in the way the NERC committee structure was reorganised. Discipline-based committees were replaced by discipline-based Science and Technology Boards, which were quite effective in serving to perpetuate the old separation by discipline that had been dominant under the three science directorates. The Earth Sciences Committee, which had been the parent of so much that had happened since 1980, was dissolved and the BGS came under a Science and Technology Board with responsibility for Earth Sciences. Even the name was clumsy. The Earth Sciences Science and Technology Board became contracted to ESTB.

The aim of the 1993 White Paper, it was claimed, was to set out a range of policies and initiatives designed to improve the nation’s competitiveness and quality of life by maintaining the excellence of its science, engineering and technology. In keeping with the ideology of the day, it was axiomatic that this was thought to be better done within the private sector than the public service. It was believed that more could be done to extend and accelerate the operation of market forces in relation to the science and technology that Government departments commissioned in support of their policy, statutory, regulatory and procurement responsibilities. There was a clear statement that the Government believed that many of the services currently provided by its research establishments could be carried out in the private sector. Thus, it was announced that Government intended to undertake a scrutiny of over fifty Public Sector Research Establishments with the aim of looking in depth at privatisation, rationalisation, and different options for ownership. It was meant to be a light and speedy review, which is rather shocking when it is considered that the future of the whole of Government-funded civil science was at stake.

A team of five full-time members, seconded from various departments, and one part-timer, seconded from the private sector, was appointed to the Efficiency Unit of the Office of Public Services and Science (OPSS) attached to the Cabinet Office. They reported to Sir Peter Levine, the Prime Minister’s Efficiency Adviser, who was answerable to William Waldegrave, the Chancellor of the Duchy of Lancaster. The full title of the exercise was the ‘Multi-departmental Scrutiny of Public Sector Research Establishments’; usually it was called the ‘Efficiency Scrutiny’. The terms of reference, announced in late January 1994, were:

1. To identify those Public Sector Research Establishments where early privatisation is feasible and desirable.
2. Where early privatisation is not feasible or desirable, to identify the potential for rationalisation of facilities or capabilities, and recommend means of implementing such rationalisation.
3. To consider whether changes to current ownership and financing arrangements for establishments would lead to more effective operation of the open market and better value for money; if so, to recommend one or more alternative models.

Although the scrutiny originated in the White Paper, it actually followed closely the ‘Next Steps’ prior options process (usually referred to as ‘Prior Options’), which had already led to reviews of some of the research establishments that were now to be involved in the Efficiency Scrutiny. Others had been subjected to internal reviews initiated by their parent departments. The novel aspect to the Efficiency Scrutiny was that the White Paper ensured that institutes within research councils were to be scrutinised, whereas they had been excluded from Prior Option reviews. The thinking behind this may have been influenced by the fact that institutes of the Biotechnology and Biological Sciences Research Council and the Scottish Agricultural Research Institutes were already functioning as companies limited by guarantee, something that was to loom large in BGS thinking in later years. This seemed to suggest that this private-sector style of operation for Government research laboratories was feasible.

There was considerable unease in the BGS when this exercise was announced. The Survey had been threatened with privatisation already in 1988 and the cynical view of many staff was that the Price Waterhouse affair was effectively preparation for privatisation. The BGS was the sixth biggest research establishment in the review and, compared with all other NERC institutes and many research establishments outside the NERC, it had a large commissioned research portfolio and could be said to look like an organisation that had the potential to survive privatisation. Many staff felt that the Survey was targeted for privatisation. This was not entirely unwelcome in some quarters. There was a significant and vocal minority that thought the BGS needed to be free of the shackles of the public sector in order to thrive in the future. Even the Director, Peter Cook, was ambivalent on the issue at the start. There was, therefore, quite a vigorous debate among staff in the six months before the findings of the scrutiny were published and put out to consultation.

It is interesting to look at the criteria for privatisation that were being used. The Government saw the distinction between the public and the private sector as hinging ultimately on the twin issues of control and liability. These were embedded in three main criteria against which the BGS and the others would be assessed. The scrutiny team decided that they would look first at the extent to which the activities undertaken by an establishment under scrutiny could be carried out within the private sector. Activities that were close to core interests of Departments, they thought, were better carried out in the public sector, while admitting that it might be difficult, within some research establishments, to disentangle such activities from those that were more distant from the Departmental core.

They would next look at the extent to which the resulting private-sector organisations could be permitted to have control of their own destiny, which might include their choosing to stop working for Government and diversifying. Their belief was that if Government should feel the need to stop a privatised organisation from going under or to intervene in its operations, then, perhaps, privatisation was not right for it. There were caveats to this one. Government might be able to seek advice from alternative sources, or even create a new source. Diversification was thought unlikely to lead to conflicts of interest. In any case, Government could bind organisations with the potential to diversify away from their original core activity to it with long-term contracts or even by retaining ownership of certain facilities and hiring them back to the newly privatised companies.

The third criterion was how far an organisation was already in shape to thrive in the private sector. This would have been a matter of relevance to the potential for a trade sale or flotation, when there would be a need to attract private-sector purchasers or investors. The salient points were a clear mission, proven revenue stream with the potential for growth, competent management, commercial-type operating methods and accounting, and a favourable balance between assets and liabilities.

These were the criteria that were to be used in a speedy and light review that would determine whether or not the BGS should be privatised. Issues like Government’s need for independent and impartial advice, the threat that privatisation may provide to the historical continuity of record, the ethics of putting into private ownership assets that had been acquired with the taxpayer’s money over 160 years and reaction among geotechnical consultancies in the private sector to having a large, powerful new organisation dropped among the smaller companies as a competitor did not seem to feature. More importantly, though, there was no specific reference to Government having a need for the outputs from long-term, strategic, scientific research. These were some of the issues that the BGS would consider quite important in its defence against privatisation. If they were not to be taken into account, the organisation felt vulnerable.

In mid-January 1994 the scrutiny team’s terms of reference were received by the BGS, accompanied by a questionnaire. Both were circulated among senior managers, and a senior staff meeting was called for 26 January to discuss their response to the questions. Written submissions were also requested from them to help draft a full response, which was to be dispatched to the scrutiny team before one of its members, Dr H K Wilson, seconded from the Health and Safety Executive, visited the BGS on 9 February.

This was the second of five reviews during the 1990s, more than in any previous decade. Except for the Charging Review, all of the reviews carried out in the 1980s had been conducted by scientists, if not specifically by geologists. In the Efficiency Scrutiny, no assumptions could be made that those being reviewed shared with the reviewers either the common language of science or even a common understanding of the remit of the public service. Having had the experience of the Charging Review, when lawyers, economists and classicist administrators had asked questions of BGS senior staff that astounded them in their seeming naivity, the Survey was slightly better prepared than some other organisations being reviewed. Nonetheless, some of the questions in the questionnaire were heavily loaded. For example, what is the correct tactical response to the question, ‘If the organisation were to change its status which would you consider the most and which the least desirable and why?’

There were seven main questions, each of which was supported by several supplementary questions. Whereas most could be dealt with factually, the question about status required the BGS to make a statement about its preference: public sector or private sector. Despite the excitement about a lively and burgeoning commercial future that had been generated by the Price Waterhouse consultancy, the official position within the BGS was one of caution. In the submission that the BGS prepared, attention was drawn to the conclusion of the Charging Review, that it saw a continuing national need for the Core Programme of long-term, strategic, geoscience surveying and monitoring and that little opportunity existed to fund this programme entirely from levying charges.

It was a great surprise, accompanied by relief, that when the scrutiny team circulated its emerging findings among research establishments in April it appeared to contain no threat to the BGS. Though the paper still had to go to Ministers there were grounds to believe that the BGS had escaped privatisation once again.

The final report was released for consultation in June 1994. The only recommendation in it that specifically referred to a NERC institute was that the case for the transfer of the Institute of Virology and Environmental Microbiology to either Medical Research Council or Biotechnology and Biological Sciences Research Council should be investigated. Four other establishments were identified as candidates for early privatisation; another was to be given Government-owned-contractor-operated (GOCO) status and two more were to be subjected to further scrutiny. As these seven constituted about 50% of the cost of all the establishments in the scrutiny, it could be said that Government’s major objective of reducing public spending had been achieved by the Efficiency Scrutiny team. These seven establishments contained the largest of those under review, AEA Technology, but five of them were smaller than the BGS.

The consultation period began with a request for Director to provide comments within a week of receiving the paper. Thereafter there was opportunity for the Chief Executive of the NERC and the Director General of Research Councils and many others to take up some of the many recommendations in the report that impacted on the way in which research councils operated. In July 1995 the status of the Science Minister was changed when the Office of Science and Technology was moved from the Office of Public Service and Science into the Department of Trade and Industry. Ministerial deliberations on the report were delayed by this change and it was not until the end of September 1995 that a statement on the Government’s response to it was released by Ian Lang, the President of the Board of Trade. He stated that the Government accepted most of the recommendations of the report, but there were several, some involving the regrouping of research council and departmental institutes, which were not accepted. Other recommendations were about operational matters, and some of them were implemented, but the actual impact of any of this on the BGS was negligible. It might have been different had the BGS not been through the Price Waterhouse process. It was evident that, as so many of the changes that the Survey had been through matched elements of the recommendations of the scrutiny report, many Public Sector Research Establishments were far behind the BGS in developing their commercial capability.

Despite all this, there were no grounds for relaxation or complacency. The scrutiny team had recommended that, in the future, research council institutes should be included in a modified form of the Prior Options review. This was taken up and Mr Lang announced that a Prior Options review of the research councils was to be undertaken and completed by the end of 1996. It was felt, at the time, that Government, dissatisfied with the outcome of the Efficiency Scrutiny, was making another attempt to identify establishments for privatisation. There was another sting in the tail. Mr Lang said: ‘Nevertheless, the Government accepts the scrutiny’s finding that there is scope for improving co-ordination and co-operation in managing research establishments across Departments and Research Councils. We want as much funding as possible to go to front-line science, rather than administration’.

Out of this statement, came the Senior Management Review of the summer of 1996, carried out, again, by staff seconded to the Office of Science and Technology.

If the Efficiency Scrutiny had been meant to be light and speedy, this one was ‘ultra-lite’. The review team inspecting the NERC consisted of four people. A Grade 5 seconded to the Office of Science and Technology, Dr Derek Barker, headed it. With him were a Grade 7 and an HEO from OST and the Grade 7 head of the NERC’s Audit and Assessment Unit. The procedure was quite simple. Some 39 of the NERC’s senior staff were involved, from the Chief Executive down to all Grade 5s, with a few selected Grade 6 managers. Each was required to fill in a Job Evaluation of Senior Posts (JESP) form prior to an interview. The interviews took place in August and lasted about one hour each. Ample guidance was provided for senior managers before the interview. The final report was to be delivered first to Sir John Cadogan, the Director-General of Research Councils, then to Sir Peter Gregson, the Permanent Secretary to the Department of Trade and Industry, and, eventually, the Treasury. It all seemed to be a fair and well-structured affair.

In reality, it was anything but fair. The Senior Management Review was, in fact, incorporated into a bigger review that had been initiated by the Director-General of Research Councils in March 1995 and was now being undertaken simultaneously. The overall aims of the Director-General’s review were to identify the optimum structures for each of the research councils, ensuring that the aims and requirements placed on them could be effectively discharged at minimum cost. A statement from the Office of Science and Technology about this review, contained in a letter received by Peter Cook in March 1995, indicated that the Director-General was looking for reductions in the administrative costs of science by 30%. His intention was to review all the Grade 5 posts in the research councils. The functions of each post were to be assessed and they were to be benchmarked. The overall management structure was to be scrutinised with the aim of generating a leaner and flatter structure in which a higher proportion of income flows through to the science. Thus, although the announcement from the Minister did not come until September 1995 it had been evident for some time what was in prospect.

In the set of criteria by which Grade 5 posts were to be assessed, the BGS Assistant Directors were judged to occupy operational, as opposed to policy, posts. A Grade 5 occupying a policy post in Whitehall may have as few staff as a secretary and half a dozen Grade 7 and junior staff. In the Department of Health, Grade 5 was entry level for staff with medical qualifications, regardless of their management responsibilities. An operational Grade 5, however, was expected to manage 200 staff and administer a budget of several millions of pounds. The word ‘command’ seemed to dominate the thinking of the review team. It was clear before the interviews that the ‘delayering’ of management was to be a key feature in the review. During the interviews, various other aspects of the current political thinking were raised: outsourcing and market testing, for example, both of which were expected to yield cost savings. The interviews themselves reflected the conceit of Whitehall. It was only because the junior man was ill that the Grade 5s and the BGS Secretary were interviewed by Dr Barker, who was their peer. The Director of BGS, however, was interviewed by the Grade 7 from the Office and Science and Technology. That the OST should think that a Grade 7 from their ranks would have the understanding and experience to carry out a review of the Director’s post says a lot about attitudes in Government to the management of British science.

The outcome, when it was announced in May 1996, carried few surprises. NERC HQ was to lose one Grade 5 post and the BGS two. The rest of the NERC escaped damage. In the BGS, it was recommended that the three corporate divisions should be reduced to two by 31 March 1997 with a saving of one Grade 5 post. Another recommendation was that the merits of restructuring the four programme divisions should be considered after the outcome of the Prior Options review was known, with a view to reducing them to three. These meant that either the head of CCID or BGS International would have to go for certain, but that a decision regarding the loss of the head of one of the four programme divisions was delayed.

The Government announcement of the commencement of the Prior Options review of 42 Public Sector Research Establishments came in late September 1995, shortly after the press release on the outcome of the Efficiency Scrutiny by Ian Lang and during the Senior Management Review. The number was reduced to 36 in a later announcement. The reviews were to take place in three tranches. The outcome of the first, consisting of 17 establishments, was due to be announced in May 1996. The review of the BGS was to take place in the second tranche, in which there were nine establishments, including the NERC’s Centre for Ecology and Hydrology (CEH) and the Centre for Coastal and Marine Sciences (CCMS). The British Antarctic Survey (BAS) was not included. It was expected that reports would be put to Ministers in July that year. The third tranche was due to be completed by December. All three of the NERC reviews were coordinated by a NERC Prior Options Steering Committee chaired by Dr Ian Graham Bryce, a member of Council and Vice-Chancellor of the University of Dundee. The role of this committee was to gather evidence and produce a report, which would be submitted as advice to ministers. The report was not going to be published, and the ministers were not obliged to act on anything in it.

Of all the reviews to which the BGS had been subjected, this one was the most sensitive to external political events. It was regarded as a zero-based review (by Professor John Krebs, the NERC Chief Executive) and no one doubted that it was an attempt by Government to get what it wanted after the Efficiency Scrutiny had failed to deliver the required outcome. It was widely felt that, having failed once, Government was not going to be seen to fail again, but timing was to be crucial. The Government had lost heavily in the May 1995 local elections and was consistently returning poor opinion-poll results. The next general election had to held before May 1997. If the Prime Minister decided to go to the last possible date, there was ample time to complete the Prior Options review, but experience elsewhere seemed to indicate that there may be insufficient time to complete a process of privatisation following the publication of the results of the review. This was particularly so in the case of a trade sale if there were difficult questions to deal with in relation to assets, liabilities and statutory obligations, for example. Some such privatisations had taken more than eighteen months to negotiate, though none had actually failed because of them. Finally, no one knew whether, if Labour won the election, their Government would continue with privatisations started before the election or abandon them. It was essential, therefore, that the BGS knew in some detail what the implications were of all the options likely to face the Survey in order to be prepared for any eventuality. A member of staff, Andy Howard, was drafted into the Central Directorate Support Group full time for six months to deal with Prior Options.

The Prior Options process was structured around five key questions. They were:

• Is the function needed?
• Must the public sector be responsible for the function?
• Must the public sector provide the function itself?
• What is the scope for rationalisation?
• How should the function be managed?

Dealing with the first three was not difficult for the BGS, now a veteran of reviews, but the fourth and fifth questions required deft handling. There were risks that, if not carefully crafted, the wording of any objective assessment of the options could convey the wrong message, especially to a reader who was looking at it with a certain aim in mind.

Director called staff meetings in January 1996 to discuss the options and there were several formal and informal Directorate meetings in the period during which the BGS submission to the NERC Prior Options Steering Committee was being prepared. At the start of the process, despite having had experience of the Efficiency Scrutiny, there was no clear view among the eight members of the Directorate of what position should be adopted. Two were unequivocally in favour of remaining in the public sector. Two favoured privatisation. Three vacillated between the two extremes and one abstained. The BGS submission was ready by March and Peter Cook, in a step designed to avoid misquotes and misunderstandings at a later date, published it in a technical report, Future Options for the British Geological Survey (Technical Report number WQ/96/2). The stance adopted in it was the in-between one, that the BGS should remain a public-sector body in the NERC, but that if a change were to be deemed necessary, the status of company limited by guarantee would be appropriate.

The idea that the BGS might successfully operate as a company limited by guarantee (CLG) was first raised during the Efficiency Scrutiny. The NERC was withdrawing from the Civil Service pay agreement on 1 April 1995, which would make it easier to operate as a CLG. The Biotechnology and Biological Sciences Research Council had already converted all its institutes to CLGs. NERC HQ carried out an investigation of it as an option in September 1995, after the BGS had first looked into it. The NERC review concluded that there were benefits and, superficially, this looked like an acceptable outcome, but they did not think the BBSRC model, in which the research council had retained ownership of the buildings and employed all the staff, was appropriate for the NERC.

Once the submission was prepared the action did not stop. A number of visits to organisations that had either experienced privatisation or had been involved with it in other ways were carried out and there were several informal Directorate meetings to discuss new developments as they happened. The object of all of this activity was threefold. Firstly it was to gather and assess evidence that would allow management to decide to what extent any of the options that were currently popular would harm or help the BGS. Secondly, it was to put the BGS in a position to modify its position quickly, should external conditions change. Thirdly, it was felt that if the wrong decision about the Survey’s future were to be made, good evidence would be needed by management to organise a campaign against it.

There is no doubt that, once again, the BGS was under threat. The Prior Options Steering Committee collected evidence from external sources as well as from the Centre/Surveys under review. Not all academics consulted were wholly sympathetic to the BGS. One, who stated that he thought BGS was staffed, on the whole, by ’competent, journeyman scientists’, believed that there were no good reasons for the Survey to remain in the public sector. Rumours abounded and not all were baseless. Ever since the early 1980s, when NERC HQ first heard of the privatisation of the so-called commercial part of the Swedish Geological Survey and asked Malcolm Brown to examine the feasibility of doing the same to the BGS, the threat of splitting up the Survey had been in the air. It was considered again by Butler and by Government when it was considering its response to Butler in 1988. It was inevitable that it should come up again, and it did. One strong rumour was that a major firm of civil engineering consultants had made an offer to buy outright the BGS data holdings and collections. There was also talk of universities being interested in acquiring the BGS laboratory facilities. As the universities were regarded by Government as being in the private sector, a transfer of laboratory assets, such as this, would count as much as a privatisation as the sale of the data holdings.

The options for privatisation that had to be taken into account were varied. There was the outright privatisation either by a trade sale or a management or management/employee buyout. There was partial privatisation, full or partial attachment to a university, contractorisation to form a government-owned contractor-operated body (GOCO) and company limited by guarantee (CLG). GOCOs were quite fashionable after the way in which Serco had been contracted to run the National Physical Laboratory on behalf of the Department of Trade and Industry. The Laboratory of the Government Chemist had been fully privatised and had taken its statutory rights with it into the private sector. A consortium of the Royal Society of Chemistry, its own management and the venture capital firm 3i had bought it out. This raised the spectre of the BGS being bought out by a consortium that included the Geological Society. A third privatisation that seemed to offer itself as a model for the research-council institutes was the Natural Resources Institute, the research arm of the Overseas Development Administration. This had been broken up and each part taken over by either one university or a consortium of several.

Information was acquired about them all and it was quickly realised that there were almost as many individual models as there were privatised bodies. Each one seemed to have been tailored to suit its individual qualities and all were complex. A balance of the pros and cons for each option revealed that none of them was attractive, but of them all the least damaging was to become a CLG within the public sector. The consequences of outright privatisation were horrific, not least because then, as now, over 70% of the BGS income was derived from Government sources. As recently as 1988, Government had given its support to the BGS Core Programme, which, if it were to be continued, would require guaranteed funding at least until 2005. Any reduction in the level of Science Budget, as experience in the 1980s had shown, could make the BGS inoperable. In order to carry out both the Core and Commissioned programmes, the BGS required its current range of skills, which had implications on the viable size of the organisation. Studies done then and more recently indicate that there is not a great deal of scope for the Survey to reduce its numbers without changing its remit.

Matters, such as the BGS right of access to land that is enshrined in the Science and Technology Act 1965, which subsumed the original Geological Survey Act of 1845, did not appear to be an impediment to privatisation. Neither did the matters of the Survey’s statutory rights to borehole information and the need to support a national geological library. Similar ones had been dealt with in the privatisation of the Laboratory of the Government Chemist. There was an argument about whether the BGS case could be dealt with by administrative action, which Government was increasingly doing, or whether legislation would be required. Whichever was felt necessary would have an impact on the length of time it took to complete a privatisation of the BGS.

The outcome for twelve of the seventeen establishments reviewed in the first tranche was announced late in May 1996, indicating that the review was proceeding on schedule. The principle that seemed to be emerging was that each organisation was being shuffled one step further along the route to full privatisation. Organisations that were integral research establishments within Departments or other non-departmental public bodies were recommended for agency status. Existing agencies and CLGs were recommended either to be privatised or to be subjected to a more detailed review to explore the potential for full privatisation. This might have been taken to indicate that the most likely outcome for the BGS was to be made into either an agency or a CLG, but what worried the Directorate was that, compared even with some of the agencies and CLGs in the first tranche, the BGS already had much more commercial freedom.

Thus, this outcome did not dispel any of the fears that full privatisation must still be considered an option. Towards the end of June, Mr Anthony Beattie of the Cabinet Office made a surprise visit to BGS Keyworth, apparently to try to persuade the Directorate to jump before it was pushed. His visit was received with an unnerving sense of urgency. He sat on the NERC Prior Options Steering Committee and was the link between it and Sir Peter Levine’s team. He was also the former chief executive of the privatised Natural Resources Institute and had first-hand experience of privatisation.

His visit was quite unsettling and forced the Directorate to look in even more depth at its options. It was agreed in the Directorate that, if the organisation had to jump, it would be best to establish the BGS as an independent foundation with company limited by guarantee status. This was the preferred option expressed in the BGS submission to the Steering Committee. Even the Treasury accepted that CLG status was appropriate when it was desired to maintain the independence and impartiality of the body in question, and to avoid giving it a purely commercial character. A draft proposal for the transfer of status, written as an expression of interest, was worked up and sent for comment to the chairman of the Programme Board and Anthony Beattie at his desk at the Cabinet Office. The draft was then modified and submitted as a proposal to the NERC Prior Options Steering Committee. The die had now been cast.

There then followed an unnervingly quiet month, during which the BGS continued to struggle with the options. Even though an offer to transfer to CLG had been made, the Director still considered that it was necessary to investigate further the ‘university option’ in case the bid for CLG status failed. It was also felt that in the event of full privatisation a management buyout would give the BGS the best chance of controlling its own destiny. Examples elsewhere showed that the Government was averse to single-tender action where management buyouts were concerned and in all the recent cases management buyouts were achieved in a competitive sale. There were many constraints imposed on organisations interested in a management buyout, mainly to reduce their advantage over the competitor bidders. Management were not allowed, for example, to build their case in office hours. They were expected to do the job they were paid for in office time and organise the buyout in their own time. There were constraints on the use of public funds to finance consultants, and most of the good consultants had been retained by Government to advise them, so they would not be available to advise the research establishments.

Nevertheless, the BGS did seek advice from a venture capital firm, a commercial bank and management consultants. It became clear that, in order to raise the funds for a purchase, the senior managers would have to find a partner and it was most likely to be a venture capital firm or a bank. Naturally, any partner would look very closely indeed at the long-term financial viability of the BGS as well as the competence of its management. These were major concerns. The BGS’s high dependence on Government funding made it necessary to obtain Government funding guarantees for at least ten years. In addition, the senior staff, who would comprise the executive, would be expected to make a major financial investment in the venture as a sign of their good faith in it. This could mean mortgaging houses to raise the capital. Finally, because returns might not be immediate, it was unlikely that a partner firm would be sympathetic to retaining on the executive anyone among the senior staff who was over 55. This dose of realism put an almost immediate stop to any further exploration of this option. From here on the CLG option was the only one that would be given any serious consideration by the BGS Directorate.

On 24 July there was an announcement that gave hope to those who were opposed to the idea of privatising Public Sector Research Establishments. It was that the Parliamentary Science and Technology Committee had expressed concerns about the course of the Prior Options reviews of the Public Sector Research Establishments to the Minister for Science and had decided to conduct an inquiry into them. The deadline for written evidence to it was 1 October. The BGS was quick to put in a paper and on the strength of it Peter Cook was invited to give oral evidence to the inquiry, all of which was to be collected in October. Effectively, this inquiry slowed the process down, but few were prepared to make any assumptions about its outcome.

By September the Director was confident enough about progress to put out an office notice to all staff summarising the position thus far. Although he had not been allowed to see the report of the Steering Committee he had reason to believe that contractorisation and transfer to university ownership had been rejected by it. Three options were left, not apparently ranked. They were given as the ‘enhanced status quo’, privatisation following a negotiated sale, and privatisation following a trade sale.

In the ‘enhanced status quo’ model the BGS would remain part of the NERC and staff would continue to be NERC employees, but the Survey would become a research contractor to NERC HQ. The logic in this model was that it was a continuation in development of the current NERC ‘arm’s length’ policy. The fear among BGS management about this option was that either the whole of the core strategic programme or parts of it might be put out to competitive tender by the NERC. If external bodies were then successful, the BGS could be left to coordinate a programme over which it had no executive powers.

Privatisation by negotiated sale would involve the BGS management being invited to make a bid for ownership of the BGS through single-tender action. This had been done in the case of the Buildings Research Establishment, where the incumbent management had been given six months to negotiate an agreement for purchasing it from the Department of the Environment. This option would allow the BGS to form a company limited by guarantee. The guarantors would be representatives of the user community, who would appoint non-executive members to the BGS Board.

The third option was sale by competitive tender. There would be an opportunity for the BGS management to arrange a management or management/ employee buy-out, but its bid would be in competition with whoever else was interested.

In October, while the Parliamentary inquiry was still in progress, John Gummer announced the competitive sale of the Buildings Research Establishment, one of the Public Sector Research Establishments reviewed in the first tranche. It seemed that the attempt to arrange a negotiated sale had failed. This action immediately invalidated one of the options selected by the NERC Prior Options Steering Committee.

One problem for the Government regarding privatisation of Public Sector Research Establishments emerged as early as June, and was known to the BGS management to be serious in September. This was the not insignificant matter of what was called the ‘crystallisation’ of pensions, and it had the potential to stop the process completely.

Government does not make any separate provision for public-sector pensions. They are paid out of the general fund, as are salaries and other outgoings. In the case of a sale by competitive tender, Government would expect, because the law required it, that a bid would include provision for the pensions. Opinion was tending towards the view that, because the sums were so large, Government was going to have to take pensions out of the equation. To do so it was estimated that if all the Public Sector Research Establishments under review were to transfer to the private sector, Government would have to find £1.2 billion in cash to secure the pensions. The figure for the NERC alone was £89 million.

There were other problems for Government. As a result of the criticism that they had not been achieving the best price for some recent privatisations, they now seemed to be in favour of ‘clean breaks’ with the privatised organisations they were creating. That is, their preference was to make sales by competitive tender with no half measures. This meant that negotiated sales, which took longer to arrange and may involve a potential management buyout, had lost their appeal. They were also now running out of time. Only a trade sale could now be completed before an election in May 1997.

On 2 December the Parliamentary Science and Technology Committee published its report. It was hard hitting and critical of Government, saying that the scale and conduct of the reviews was profoundly unsatisfactory and that the wholesale disruption caused by it in the last few years should never be repeated. They recommended that the research councils should be left to organise themselves in a way that they considered most appropriate to carry out the science needed to fulfil their missions. They were also of the view that the Office of Science and Technology should work with Departments and the research councils to produce a system of regular reviews, say once every five years, which would command the confidence of all concerned.

It took until 29 January 1997 for the Government to admit defeat. In a written response to a Parliamentary Question from Nigel Evans, MP, Ian Taylor, the Minister for Science and Technology, said:

We are satisfied that the functions of the NERC establishments — the British Geological Survey, Centre for Coastal and Marine Sciences and Centre for Ecology and Hydrology — covered by the second tranche of prior options reviews are needed. We have concluded that they should remain in the public sector and retain their separate identities. I shall expect NERC to build on its ‘arm’s length’ relationship with the establishments and to improve their financial management systems.

To what extent this was a political defeat for the Government by one of its own committees and the electoral system may never be known. Whether or not the whole exercise had been necessary, however, is known. In supporting the decision, the NERC Prior Options Steering Committee announced that it accepted that environmental science is long term and multifaceted, involving research, survey and monitoring over decades, that environmental issues transcend boundaries and increasingly require an integrated and multidisciplinary approach. The benefits are pervasive and serve many users. This was new phraseology to describe very old ideas. Only ten years ago something similar had been written in the Butler report and accepted by Government.

The Steering Committee agreed that funding for such activities had to come from the public purse, but it also concluded that private-sector ownership of the NERC establishments was both appropriate and feasible provided certain conditions were met, including the provision of necessary funding. The list of factors the Committee said needed to be taken into account in any future examination of the potential for privatisation went right to the heart of the matter. They said that the core functions of the establishments do not make a profit and that there is uncertainty over the long-term funding levels and volume of work required by the NERC and other key customers. The market opportunity was small; fragmentation of the organisations is not appropriate; and there was little commercial interest shown during the review. The Committee pointed out that in the event of a privatisation of the three Centre/Surveys, rationalisation costs were likely to be in the order of £22 million, the cost of pensions crystallisation, £89 million and start-up cost estimated at £4.6 million. Despite these, the Steering Committee considered that it was appropriate for the Centre/Surveys to be privatised in the form of profit-retaining CLGs with charitable status. As an example of Orwellian doublespeak, this has few parallels.

Having escaped privatisation, the Centre/Surveys were not entirely free from any consequences of the review. The Steering Committee had recommended that in preparation for privatisation, but also in the interests of improving the delivery of the NERC’s science, there was scope for restructuring and rationalisation of the Centre/Surveys. The ministerial statement endorsed this. The NERC was required to develop an implementation plan, which it completed and released in May 1997. There were three strands to it. The three Centre/Surveys that had been subjected to Prior Options were to be ‘rationalised and restructured’, the arm’s length relationship that was developing between NERC HQ and the Centre/ Surveys was to be enhanced and there was to be improvement in the financial management system for the NERC.

For the BGS this meant losing two of the Assistant Director posts, several Group Manager posts and eighty other staff, and undergoing another review of the efficacy of keeping offices in Edinburgh, Exeter and Wallingford.

The review of the offices produced no change, but there was no way to avoid the staff reductions. No one, even Peter Cook, was quite sure how the Steering Committee came up with a figure of eighty staff to be lost. The best guess is that it represented around 10% of the total staff complement. It was to be made up of natural retirements, resignations and early retirements and would include staff that had already gone in the previous year. At the same time as staff were to be lost, recruitment of 37 new staff was to be allowed. The purpose behind this was to change the balance of the grades rather than to contract the organisation. Outgoing staff were to be Grade 7 and SSOs; incoming staff would all be junior grades.

Because the BGS had been allowed by the NERC to take into account staff movements, retirements and resignations that had already happened in the year before the announcements were made the figures that were finally agreed were 74 staff to be lost and 46 new appointments. Nevertheless, a year later, in May 1998, the new Director, David Falvey, had to put out an office notice renewing the offer of early retirement and raising the possibility of compulsory redundancy if the numbers could not be made up by other methods.

It is ironic that by the time the first office notice was issued on 20 May 1997 advising staff that the NERC was making a large sum of money available for an early retirement scheme to help achieve this staff reduction, the Government that had forced it upon the BGS had lost a general election.