Thursday 17 May 2018

Dodgy Contracting?

Whilst we have been necessarily distracted by the Napo General Secretary selection process, we have our regular contributor 'Getafix to thank for unearthing the following from the somewhat niche Spend Matters UK/Europe website:-   

Are Top UK Civil Servants Breaking The (Procurement) Law? Yes, According to PACAC Committee Evidence

Yes, following the UK parliament’s Public Administration and Constitutional Affairs Committee hearing on public sector outsourcing post the Carillion collapse, we’re going for the “clickbait” headlines to try and entice you to read what can sound like fairly dry reports of MPs grilling senior civil servants.

And actually, buried amongst the two hours of material, (you can watch it here), there were some rather striking nuggets. We’ll have several reports on the hearing, but let’s start today with perhaps the most interesting.

The victims for the Committee were David Lidington, the new “Minister for Procurement”, clearly a bright guy but has no background in anything commercial, little clue what he’s talking about, having to read from his notes when asked a tricky question such as “what are the benefits of outsourcing”? (I wondered once or twice whether his brief was based on the submission I sent the Committee, as some of his comments seemed very similar to my words!)

John Manzoni, the Civil Service CEO, has learnt how to speak convincingly when needed without really saying anything, a la Sir Humphrey, although he was interesting at times. He also gets away with saying “we’re just working on that now” quite regularly despite the fact he’s been around for over four years now. Gareth Rhys Williams, the government’s Chief Commercial Officer, looked and sounded uncomfortable at first but warmed up pretty quickly.

Anyway, to the matter of the day. EU and UK procurement regulations are pretty prescriptive when it comes to changing major contracts post-award. There is an obvious reason for that. The initial competition can be compromised if terms are changed once the contract is in place. I give my brother-in-law the contract because his firm bids low, then I just increase the agreed prices by 20%. That sort of practice raises issue around fairness, transparency and even corruption – issues the EU is pretty keen to address through proper public procurement.

So it was a little surprising to hear this Committee discussion. Asked about contracts that are in difficulties, “we have re-priced in some case” says Manzoni. He then backs off somewhat and says “we have to be careful with regulations”. Really? Tell us more, do explain where you have broken the law! “Several I can think of where a re-pricing has taken place, where we have got it wrong”.

Rhys Williams then said that we get more detail from open book contracts, we can see how they are doing, and try to price in a fair way – “where vendors are losing money on individual contracts we need to work with them to re-price it or change the spec”.

But the EU and UK Regulations are clear on this. You can modify a contract if the “need for modification has been brought about by circumstances which a diligent contracting authority could not foresee”, AND the modification does not alter the overall nature of the contract, AND any increase in price is not higher than 50% of the value of the original contract or framework agreement. Even then, you must publish a notice in the OJEU to say you have modified the contract.

Another part of the directive says this. A modification is considered “substantial” if it “changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement”.

So where does “re-negotiating the contract because the supplier isn’t making any money from it” stand in terms of the directives? It would appear to be breaking the rules – it certainly changes the economic balance, and the overall nature of the contract. And of course the key point is that the supplier won the competition on false pretences; I beat you to it by bidding a 5% lower price, but now the government has decided to pay me 10% more than my bid, or has relaxed the specification. So it may well be you deserved to win the contract in the first place.

We do understand where Rhys Williams and Manzoni are coming from on this. There are real dilemmas when suppliers get into “bad contracts” and it is often not in the buyer’s interest either to demand continuation on those terms. It has become a bigger problem in the last couple of years in the UK, as we have seen issues with Carillion, Capita, Interserve and more major suppliers struggling.

But re-negotiation takes us into a very tricky legal area. It might be hard for a disgruntled supplier to challenge such events – how would they even know? But it just needs one executive who has had such negotiations with Manzoni or Rhys Williams to jump from that firm to another, and then challenge, and this could get very messy.

--oo00oo--

At least one other contributor picked up on the possible significance of the Select Committee exchanges and of course we've just heard the third-time failed ECML Virgin/Stagecoach rail franchise has been terminated by Chris Grayling:- 

Getafix's reference might be more significant than first glance suggests:

"Asked about contracts that are in difficulties, “we have re-priced in some case” says [John] Manzoni. He then backs off somewhat and says “we have to be careful with regulations”. Really? Tell us more, do explain where you have broken the law! “Several I can think of where a re-pricing has taken place, where we have got it wrong”.

Rhys Williams then said that we get more detail from open book contracts, we can see how they are doing, and try to price in a fair way – “where vendors are losing money on individual contracts we need to work with them to re-price it or change the spec”.

But the EU and UK Regulations are clear on this. You can modify a contract if the “need for modification has been brought about by circumstances which a diligent contracting authority could not foresee”, AND the modification does not alter the overall nature of the contract, AND any increase in price is not higher than 50% of the value of the original contract or framework agreement. Even then, you must publish a notice in the OJEU to say you have modified the contract.

Another part of the directive says this. A modification is considered “substantial” if it “changes the economic balance of the contract or the framework agreement in favour of the contractor in a manner which was not provided for in the initial contract or framework agreement”.

So where does “re-negotiating the contract because the supplier isn’t making any money from it” stand in terms of the directives? It would appear to be breaking the rules – it certainly changes the economic balance, and the overall nature of the contract. And of course the key point is that the supplier won the competition on false pretences; I beat you to it by bidding a 5% lower price, but now the government has decided to pay me 10% more than my bid, or has relaxed the specification. So it may well be you deserved to win the contract in the first place."

I hope the failed CRC bidders & charities saw the committee transcript & are angry, that civil servants who amended CRC contracts are shitting their pants & that scrutiny by any relevant authority of the whole CRC process unearths how unfair & cosy Grayling made it for his favoured chums.

15 comments:

  1. On the day that a damning report into the collapse of Carillion is published, Grayling is in the House announcing another failed East Coast Mainline contract failure by Virgin and Stagecoach.
    He denies it will cost the taxpayer anything, but no one on the planet believes a word of what Grayling says anymore. He did after all award a huge contract to Carillion akmost on the eve of their demise. Its worth too remembering that Virgin have recently sued the Government over its procurement processes.
    Next week, they'll try to keep it quite but, the Government will hand over half a billion pounds to rescue Crossrail. Most of it will go to the usual suspects.
    A quick browse today also shows that care facilities rated outstanding two years ago are being put into special measures and rated inadequate since Virgin were awarded the contract, despite it being worth 14% more money then the previous contract was worth.
    Centrica are increasing energy prices and that's partly due to changes in the buying process brought in by government, and again raising concerns from the PAC who estimate those changes will cost the consumer over £15billion.
    We all know about the £342m back handed to CRCs and the huge amount spent on failed IT systems procured by government by outsourcing.
    Interserve, Capita and Kier are just three major government outsourcers that are in major trouble and are at real risk of collapse, yet whilst they're cutting staff numbers and constantly failing on delivery they're still being awarded more government contracts.
    Interserve have just raised their payment period to their supply chain to 42 days despite that being of great concern in the Carillion inquiry.
    Everywhere you look the private sector are leaching from the public purse whilst public services are being cut to the bone and the queues for food banks grow longer. Its a disgrace, its unethical and dodgy as f**k.

    https://m.huffingtonpost.co.uk/entry/capita-nhs_uk_5afc7569e4b0a59b4dffed4e

    'Getafix

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    1. Family doctors, dentists and opticians are suffering from “widespread failures” as a result of the NHS contracting out back-up services to private sector firm Capita, the UK’s spending watchdog has said.

      In a damning report, the National Audit Office warns the problems with the part-privatisation have “potentially put patients at risk of serious harm”.

      In 2015, Capita was awarded a £330 million contract over seven years by NHS England to provide back office services to 39,000 practitioners, including GPs and pharmacists.

      But the NAO criticised how the NHS was unable to stop Capita’s “aggressive” and “harmful” programme of office closures as it attempted to cut costs by more than a third.

      It said the planned overhaul was “high risk” and “more complex than Capita or NHS England had anticipated”.

      Among instances of failure noted by the NAO, the watchdog reported how 87 women were notified incorrectly that they were no longer part of the cervical screening programme, and that processing issues led to an estimated 1,000 GPs, dentists and opticians being delayed from treating patients.


      NHS England has saved £60 million in the first two years of the contract, with with Capita taking the financial hit, but the NAO said value for money is about “more than just cost reduction” and signalled the contract was not working effectively.

      Meg Hillier, chair of Parliament’s Committee of Public Accounts, blasted the “over-ambitious” and “disruptive” modernisation programme.

      The report highlights Capita were drafted in to fix a series of problems that included a 20-year-old IT system.

      But as well as attempting to modernise the service, Capita closed 35 of the 38 support offices and cut staff numbers from 1,300 to 660 in around a year.

      In 2016, NHS England served Capita a series of ‘default notes’ which began a formal process to improve struggling services.

      Amyas Morse, the head of the NAO, said: “Neither NHS England nor Capita fully understood the complexity and variation of the services being outsourced.

      “As a result, both parties misjudged the scale and nature of the risk in outsourcing these services.

      “While NHS England has achieved financial savings and some services have now improved, value for money is about more than just cost reduction.

      “It is deeply unsatisfactory that, two and a half years into the contract, NHS England and Capita have not yet reached the level of partnership working required to make a contract like this work effectively.”

      Meg Hillier MP, chair of the Committee of Public Accounts, said: “Trying to slash costs by more than a third at the same time as implementing a raft of
      modernisation measures was over-ambitious, disruptive for thousands of doctors, dentists and pharmacists and potentially put patients at risk of serious harm.

      “Neither NHS England nor Capita properly understood the scale of the challenge before agreeing the contract and are still in dispute over future payments.

      “Yet again this is poor contracting by Government with one of its major suppliers and it must learn lessons.”

      A Capita spokesperson said the complexity of the support services being let by NHS England was not fully understood when the contract was signed.

      “It has been acknowledged that performance has improved and Capita will continue to work with all parties to address the remaining service issues,” they said.

      “We have accepted accountability for not meeting our high standards of service previously.”

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    2. Virgin Care.

      https://inews.co.uk/news/health/virgin-care-gp-practice-rated-inadequate/

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    3. Yes that just about sums it up Getafix: 'Its a disgrace, its unethical and dodgy as f**k.'
      And of course, all totally predictable, and driven by greed.
      The UK is fast declining into 3rd world status.
      ... But still, people (apparently!?) vote for them.
      Honestly, it's enough to make the most optimistic of people lose all glimmer of hope. God knows how the service users will fair in all this.

      Delete
  2. From IACCM - International Association for Contract & Commercial Management enables both public and private sector organizations and professionals to achieve world-class standards in their contracting and relationship management process and skills.

    "A 2013 KPMG Quarterly Global GBS Pulse Survey suggests that 85% of transitions were late, over budget or did not meet requirements. Delays cause cost overruns and business disruption, increase program risks and reduce end-user satisfaction. Too often, sourcing contracts are terminated due to failure of transition to deliver value to the outsourcing partnership

    Key challenges to effective transition management

    * Scope of transition not articulated clearly and comprehensively in the contract;
    * Lack of clarity on roles and responsibilities of the client and supplier;
    * Lack of clarity of expectations in terms of time, effort and investments from each of the stakeholders concerned;
    * Transition methodology not defined up-front and agreed between all stakeholders concerned;
    * Inadequate staffing and lack of right skill sets deployed by the supplier for the various activities that needed to be carried out during transition;
    * Insufficient and appropriate staffing resulting from inadequate understanding of the client environment and due diligence;
    * Interdependencies between various service elements not being thought through and captured correctly in the contracts; and
    * Lack of an effective governance mechanism to monitor transition progress and risks and lack of clearly defined remediation in case of any deviation.

    Sourcing contracts need to stress the importance of all aspects of the transition of services. The right stakeholders need to be involved in the contractual process, and to fully understand the scope, scale and complexity of the transition that will be involved."

    And from the earlier posts + other sources:

    * Amyas Morse, the head of the NAO, said: “Neither NHS England nor Capita fully understood the complexity and variation of the services being outsourced.

    * “Neither NHS England nor Capita properly understood the scale of the challenge before agreeing the contract and are still in dispute over future payments."

    * A Capita spokesperson said the complexity of the support services being let by NHS England was not fully understood when the contract was signed.

    * The Secretary of State for Justice announced in July 2017 that the probation system had “encountered unforeseen challenges”

    * The Ministry concluded that it and bidders had overestimated CRCs’ ability to reduce their costs, and amended the contracts to recognise this.

    * The Ministry paid CRCs £562 million in fees for service for 2014-15 and 2015-16. If the terms of the contracts had been applied, then the Ministry would have paid CRCs £351 million in 2016-17... In response, the Ministry paid CRCs around £393 million, £42 million more than the contracts required.

    * the payment model was too complex and failed to recognise CRCs’ increasing caseloads

    * the payment mechanism did not reflect the administrative burden of managing caseloads

    * The MoJ’s management of contracts will be robust. Providers will be expected to meet the highest standards, ensuring that taxpayers’ money is spent properly and transparently (MoJ TOM paper, 2013)

    * The two private justice companies giving evidence to the select committee made clear they were pinning their hopes on ministers “fixing” the payment mechanism

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  3. Remember the scam-meister Antonia Romeo being interviewed for Civil Service World?

    "Getting it right this time

    The complexities of the new system are bound to make its introduction challenging – and it’s far from proven that the ministry is capable of successfully managing such a big outsourcing project. After all, four days after the CSW interview in which Ursula Brennan rejected the challenges put to her concerning the courts interpreters project, the Treasury quietly published a response to the Public Accounts Committee report in which it accepted every single recommendation: at that time at least, there were clearly big holes in the ministry’s outsourcing capabilities. So let’s run through some of the things the MoJ got wrong that time.

    First off, PAC found that the MoJ “did not have a clear understanding of its requirements under the new system”, and ended up being “driven by bidders’ proposals rather than its actual requirements.” What’s more, it didn’t pilot its scheme before implementing it nationwide. What evidence is there that the new probation system will meet the MoJ’s aim of reducing reoffending? Romeo acknowledges that the ministry hasn’t trialled its final proposals anywhere. “You have to turn on the statute once nationally,” she says. “You can’t provide rehabilitation services to under-12-month cohorts in some areas and not in others – not least because people go in and out of prison, and end up in different areas, so whether they were covered by the statute or not and whether that service provision existed would become impossible to manage.”

    Furthermore, she notes, there’s “a timing issue, because the government’s policy is to roll it out by 2015, so we can really start feeling the effects in reductions to reoffending.” There is clearly a political timetable behind the pace at which the MoJ is moving"

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  4. * A Capita spokesperson said the complexity of the support services being let by NHS England was not fully understood when the contract was signed.

    Simple. Don't play with things where there may be a risk if you don't fully understand them.
    Buyer beware, if you break it you own it.
    I didn't understand isn't a defence in court, nor should it be one when you don't get the returns you thought you would.

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    1. You're not a first offender, so why think "I just didn't understand" is a good enough reason?

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  5. Institute for Govt "New Models of Working" events, April 2014:

    "Antonia Romeo began by putting the challenge in context – the MoJ is taking 30% out of their budget over 5 years. They are faced with the choice between cutting back the services they provide, or finding new ways to deliver those services on a reduced budget. One way in which they are meeting this challenge is designing and delivering a new model of rehabilitation and probation services. They will set up 21 community rehabilitation companies to deliver services to offenders. These services will be contracted out to a diverse range of providers, including the voluntary sector and mutual.

    She noted a number of ways in which this new model is innovative:

    They are working closely with the Cabinet Office to provide grants to support smaller VCS organisations to bid for contracts, and are seeking to level the playing field to allow mutual to bid for contracts
    The contracts will be run on payment by results basis to focus minds on outcomes, which will allow providers to design interventions
    They have created the ‘Justice Data Lab’ which allows providers to share knowledge and expertise on what works in reducing re-offending. This data will later by published, and will help to create a culture of best practice and transparency

    Antonia noted a number of challenges, including:

    The need to build the public sector’s capacity to be an intelligent commissioner of services - the more services you contract out, the more you need to be an intelligent customer and choose the right contracts
    The importance of consulting widely to choose the right partnership, and ‘shadow run’ the model before it goes live
    Avoiding silos between service providers: they’ve including a section in the bidding documentation that requires bidders to demonstrate how they would foster co-operation at a local level
    Gathering and publishing the right data so you can properly assess the results of the intervention and encourage best practice"

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  6. Was there a privatisation u-turn involving failing grayling? Not a peep from Napo. Who ever wins the gs role please sort out the lack of media we have it is more than embarrasing it is disrespectful to us.

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  7. Government outsourcing of important public services is fundamentally flawed. A race to the bottom. The idea that there will be a market realised balance that will lead to the greatest public good at the lowest public cost is an idea that exists somewhere between cloud cuckoo land and the end of the rainbow.

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  8. 11/21 private probation companies hit PbR targets.

    Should the other 9 look to the 11 for guidance or is it a case of being in the right place at the right time? What does the evidence say? Or what does the evidence that is not commercially sensitive say?

    The figures are based on a simple binary, did they reoffend or not? It will be interesting to see what the rates of recidivism are and whether they are aligned to a maintenance of investment in multi agency / local collaborative effort or a disinvestment in these approaches and chasing a utilitarian average based on a business model.

    The game is definitely afoot and I dare say some gamesmanship will follow.

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  9. i have a strong feeling that targets have been fudged.

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    1. I can refer you to 08:47 post above:

      "The two private justice companies giving evidence to the select committee made clear they were pinning their hopes on ministers “fixing” the payment mechanism"

      The whole illegal franchising scam has been 'fessed up to in a parliamentary committee, yet still no-one gives a flying fuck.

      Delete
  10. From PAC Summary of evidence March 2018

    4. In July 2017, the then Secretary of State for Justice announced that the probation system had “encountered unforeseen challenges” that led to the Ministry adjusting its contracts with CRCs.The Ministry explained that there were three reasons why it had adjusted the contracts.

    - Firstly, the number of offenders being referred to the National Probation Service was higher than expected, while the numbers being referred to CRCs was lower. The Ministry told us that this is the result of changes in the nature of crime, with many more serious offences coming before the courts.
    - Secondly, courts tended to impose fewer accredited programmes to non-custodial sentences, for which CRCs receive greater payments. The Ministry admitted that courts appear to have lost confidence in some of the services delivered by CRCs.
    - Finally, the Ministry assumed that CRCs could be more flexible in reducing their costs than turned out to be the case.The payment mechanism in the contracts assumed that 20% of CRCs’ costs were fixed. In fact, the Ministry’s later analysis showed that fixed costs were on average 77% of total CRC costs. Sodexo, which, in partnership with Nacro, owns 6 CRCs, told us that the Ministry’s allocation of costs during the procurement process was incorrect. It told us that that its CRCs could have managed their costs for limited changes in volume, but the changes were far greater than this.

    5.Both HMPPS and the Ministry recognised that they had failed to properly anticipate the possibility and impact of lower than expected volumes of work flowing to CRCs. They told us that in letting the contracts their approach had been to share historical data with potential providers and explain to them how the contracts would be run.The Ministry did not pilot the fundamental changes to the probation system that CRCs represented before rolling them out. During the procurement, it only modelled the effect of a 2% change in CRCs’ activity volumes.The Ministry has the capacity and capability to monitor the changing composition of criminal cases heard by the courts, and monitor and respond to shifting trends in sentencing decisions. As part of its reforms, the Ministry extended monitoring and supervision to prisoners who have served 12 months or less—a group of offenders with complex needs—amounting to approximately 40,000 offenders each year. HMPPS told us that CRCs are paid the lowest rates for supervising this group on the basis that they will be compensated under payment by results for reducing high reoffending rates. Although the Ministry claimed these challenges were unforeseen their causes were all within its purview.

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