To assist us with our inquiry we took evidence from NRW on two occasions and from the timber industry sector, represented by the United Kingdom Forest Products Association. I would like to take this opportunity to thank our witnesses for assisting us with our work. Having carefully considered the evidence, we found there to be a number of issues regarding NRW’s handling of the awarding of its timber sales contracts. Firstly, we found there to be a lack of board and executive team scrutiny of major decisions. We were very surprised to hear that the decision to enter into contracts with the sawmill operator was delegated to just one officer at NRW. We were left unconvinced by NRW’s assertions that the decision had not been taken in isolation and had been supported by a full business case, particularly given that, in later evidence to us, NRW themselves highlighted that the business case could be better described as an ‘options paper’, lacking in essential data and analysis to ensure informed decision making.

We found it to be extraordinary that a substantial contract, worth £39 million, would be awarded in this way. These facts alone demonstrated to us that NRW’s governance arrangements were weak and that their decision-making processes were far from robust. Our evidence also found there to be serious failings in terms of NRW ensuring that a major contract was subject to competition or alternatively being able to demonstrate through market testing that there was only a single possible supplier. Although NRW told us that there was only one sawmill operator able to meet their operational requirements at the time, we heard no evidence to support this case, and in the absence of a tendering exercise, there is no absolute certainty that there was only one operator able to meet NRW’s requirements.

Of further concern to us was that one of the key reasons NRW entered into the contract with the sawmill operator was to create additional capacity in the timber industry by building a new saw line. However, we heard from NRW that sufficient capacity was later achieved without the construction of a new saw line, which raised questions for us about the decision to award the contract to the operator in the first place. We later heard that the sawmill operator had indeed breached its contractual obligations in respect of building an additional saw mill. We were extremely disappointed that a firm that was awarded with a £39 million contract, for which no other company was able to bid for, had failed to fulfil such a pivotal element of that contract. Our evidence led us to conclude that a serious error of misjudgement was applied in awarding the contract to an individual sawmill operator without a full and open re-tendering exercise or robust market testing.

We heard that the auditor general had concluded that transactions relating to the timber sales contracts were ‘contentious and repercussive’ and that under the provisions of NRW’s framework document and the provisions of the Welsh Government publication, ‘Managing Welsh Public Money’, which constitutes ministerial directions, NRW was required to refer contentious and repercussive proposals to the Welsh Government. NRW did not refer these contracts to the Welsh Government and therefore acted outside the framework of authority to which it is subject. The auditor general also considered that there was significant uncertainty as to whether NRW complied with the principles of public law within the decision-making process for the contract award, and whether the award of the contracts complied with state-aid rules. In view of this uncertainty, the auditor general was unable to positively affirm that the transactions with the sawmill operator conformed to the framework of authority that governs NRW.

In evidence to the Public Accounts Committee, NRW informed us that it did not believe that advice on state aid was necessary at the time and that they had no awareness of state-aid issues and neither sought advice on it. We were further concerned to discover that NRW’s awareness of state-aid issues was only initiated as a result of the auditor general’s findings. Given that state aid is, or at least should be, a clearly understood risk for those responsible for the expenditure of public money, we found it unacceptable that NRW did not feel it necessary to seek legal advice on this matter. In light of this, we recommended that NRW review its delegation arrangements alongside its awareness raising of state-aid law, public law and the processes for awarding contracts. We also recommended that the findings of this evaluation are shared with the Public Accounts Committee to enable us to monitor implementation and progress against identified changes.

As a committee, we believe that NRW could and should have ensured that there were good governance arrangements in place for its contracting process, and in failing to establish such arrangements were unable to demonstrate how it acted lawfully or whether the contracts represented value for money. As such, we recommended that Natural Resources Wales undertake a full evaluation of its governance arrangements relating to contracting processes, clearly setting out lessons learned with specific reference to the timber sales contracts in question.

We note that NRW’s accounts 2016-17 were laid yesterday at the Assembly and the auditor general has qualified his regularity opinion on these accounts for the same reason as the qualification of the regularity opinion on the 2015-16 accounts—the award of a series of timber sales contracts. The opinion on the financial statements is unqualified.

The auditor general’s report of the accounts, which is included in the audit certificate of the accounts, notes that, since the date of his 2015-16 report, Natural Resources Wales have put in place an action plan to address the issues identified in his report, progress against which will be overseen by Natural Resources Wales’s audit and risk assurance committee on behalf of its board. We’re pleased with the actions taken by NRW since the publication of the auditor general’s report and that NRW have fully accepted all three recommendations made in our report. We also welcome that NRW have provided us with a copy of an action plan, showing how they intend to take forward each of our recommendations, including timelines. We note that these actions are due to be completed by the end of October 2017, and we look forward to NRW providing us with an update on progress in November 2017.

Central to all our work is driving forward improvement in the efficient delivery of public services and ensuring value for money with regard to the expenditure of public funds. We hope that NRW will work to secure the necessary improvements to ensure its good governance going forward, and that the issues arising from its handling of these timber sales contracts are never repeated. We trust that the Cabinet Secretary for Environment and Rural Affairs will work with the new chief executive of Natural Resources Wales, once they are appointed, to ensure that this is the case.