Transforming government’s contract management

Lynne Rathbone, Browne Jacobson

Following the discovery of ‘serious anomalies’ in billing practices under the Ministry of Justice’s (‘MoJ’) electronic monitoring contracts with G4S and Serco, government commissioned a series of reviews of contract management across government departments.

On 4 September 2014 the National Audit Office (‘NAO’) published its report, ‘Transforming government’s contract management’, which sets out the results of its resulting review of government contracts with the private sector.

Background

On 11 July 2013, Chris Grayling, the Lord Chancellor and Secretary of State for Justice, told the House of Commons that an audit had found instances where G4S and Serco were charging for tagging where none was taking place, leading to over-billing to the tune of tens of millions of pounds.

Instances “… included charges for people who were back in prison and had had their tags removed, people who had left the country and those who had never been tagged in the first place but who had instead been returned to court. There are a small number of cases when the subject was known to have died. In some instances, charging continued for a period of many months and indeed years after active monitoring had ceased.”

Grayling described the management of the contracts as “wholly inadequate” and confirmed that an entirely new contract management team had been put in place, led by his procurement director and validated by the independent auditors.

The issues initially came to light during the re-tendering process for the G4S contract, with anomalies between the historic data provided by G4S to the procurement data room (as incumbent supplier) and the assumptions built into G4S’s own pricing model in their bid for the new contract. Once the scale of the issue became apparent, the MoJ Permanent Secretary was informed, as was the Cabinet Secretary and the NAO.

The PWC Forensic Audit team were duly engaged and a full audit was jointly commissioned by the MoJ and the NAO; the MoJ commissioned further reviews of its other contracts and the Cabinet Office did the same for the major G4S and Serco contracts across government. The Home Office and the Department for Work & Pensions also commissioned internal reviews of contracts with a range of contractors. In total, government tested 60 contracts for overbilling and 73 for contract practice management.

The NAO Report

The NAO report (‘Report’) confirms that most of the contracts reviewed showed widespread weaknesses in the way in which the contracts were managed, including poor governance, record keeping and capacity issues. The Report sets out recommendations as to how the Crown Commercial Service and other departments can improve contract management going forward.

Key findings

Response to overbilling: The Report found that the Government reacted strongly in handling G4S’s and Serco’s overbilling but that, due to the size of the firms concerned, there was perhaps some reluctance to take more robust action due to concerns that the resulting failure of the firms concerned “…could create widespread disruption to public services and government wanted their ongoing participation in competitions”. It was instead demanded that both companies undergo a formal process of ‘corporate renewal’ to address the failures. Both firms were also reported to the Serious Fraud Office.

Payments of £104.4 million from G4S and £68.5 million from Serco were negotiated in relation to the overbilling on electronic monitoring contracts. A further £4.5 million was paid to government by G4S in respect of billing issues on two court facilities management contracts and Serco paid £2 million relating to its prisoner escorting and custodial services contract.

Problems with contract management: the reviews uncovered widespread issues with contract management, including poor planning and governance, administration, record keeping, reporting structures, risk management and a general lack of suitably experienced people within government to manage commercial contracts of this nature.

According to the NAO, government is taking the findings of its reviews very seriously and reforms are going in the right direction. Amyas Morse, head of the NAO, said:

“For several decades, governments have been increasing their use of contracts with the private sector to provide goods and services. This has produced successes but also thrown up major new challenges, which are not easy to surmount. Not the least of these is the need to build up the commercial skills of contract management staff, both in departments and in the centre, and enhance the status and profile of their role. Current reforms are going in the right direction and government is taking the issue seriously. I welcome the fact that the Ministry of justice, in particular, has responded promptly and positively with a wide-ranging improvement plan. There is, however, much to do, and the acid test will be whether the resources and effort need for sustained improvement are carried through into the future performance of the departments in procuring and managing contracts”.

Next steps:

The Report sets out the steps which it regards as important in transforming contract management for the future. These include:

  •  putting in place the systems and processes to enable effective oversight and management of contracts;
  • ensuring that responsibility for the delivery of contracted-out services properly rests with the contractors; and
  • ensuring the Government finds ways of making the most of its commercially experienced staff, giving them the right skills and an enhanced role.

In order to ensure that the transformation envisaged by the Report comes to fruition, the NAO has recommended that the Cabinet Office set up a cross-government programme to improve contract management, building on the work of the Markets for Government Services (Officials) group, and that HM Treasury and the Cabinet Office continue to use commercial capability reviews to ensure reforms are embedded.

In a recent press statement, the Right Honourable Margaret Hodge MP, Chair of the Committee of Public Accounts, said: “The discovery that G4S and Serco had massively over-charged the Ministry of Justice on public service contracts was an urgent wake-up call for the government’s disastrous contract management”, stating that the Government’s responsibility for contract management does not end when the contract is signed but that it is essential that contract performance is monitored closely over the life of the contract “…to protect the interests of taxpayers and those who rely on our public services”.

How much of a wake-up call it has been will remain to be seen, but it is clear that the performance and management of government contracts with private sector providers will remain under close public scrutiny for some time to come.

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