A cross government review of 28 major contracts held by G4S and Serco, totalling £5.9 billion in total, has found that in the majority of cases departments displayed weaknesses in management.
It also identified that there were deficiencies in key controls being applied to the invoice and payment processes on the contracts, exposing departments to the risk of over-charging.
The review was prompted by accusations that the two companies had overcharged the Ministry of Justice millions of pounds on an electronic tagging contract– which has recently been handed over to Capita to manage. The Serious Fraud Office (SFO) is also conducting an investigation into G4S and Serco’s roles in the scandal, which has seen off a number of bosses at the companies.
It was revealed today that Serco will be reimbursing the government £68.5 million because of the problems with the contract.
The review also follows a number of reforms taking place in the public sector, where Whitehall is clamping down on suppliers that don’t perform on high-paying contracts, whilst also beefing up commercial skills within government departments.
Two examples of this include the release of the Civil Service Reform Plan, which advises how Whitehall should operate more efficiently in the digital era, and the introduction of the Crown Commercial Service – which will centralise procurement and allow the government to purchase goods and services as a single customer.
“We need the very best commercial skills to be able to take the opportunities that opening up public services brings and we know that these skills are not yet strong enough across Government. The Civil Service Reform Plan sets out our ambition to build our commercial capability,” said the government’s chief procurement officer, Bill Crothers.
“We have made some great steps forward already, for example, the network of experienced Crown Representatives that are helping Government to act as a ‘single client’ with our largest suppliers, and the appointment of experienced Non Executive Directors to all Department Boards bringing commercial expertise to the ‘top table’.”
He added: “It is clear though that the task ahead is significant and we are determined to address it. Departments across Whitehall are taking action to improve their commercial capability.”
The review of Serco and G4S contracts found that although key controls aren’t being applied to the invoice and payment processes, in most cases the impact is “unlikely to be material”. Despite this, it recommends that senior management attention is paid to the issue.
However, there are three contracts in place, held with the Department for Work and Pensions (managed by Serco and G4S), where the possibility of errors or irregularities could be more significant. These are ‘payments by results’ contracts, which require inherently more complex contract management.
It has been recommended that further testing be done to establish with more confidence the significance and impact of the risks involved.
Of the eight themes assessed in the report there were only two that didn’t show evidence of “gaps or weaknesses that give rise to the risk of material errors or irregularities in charging, or a significant operational failure”, which were the government’s ability to manage relationships and administration capabilities.
However, in the remaining six – planning and governance, people, managing performance, payment and incentives, risk and contract development – gaps or weaknesses were evident.
The report states: “The Review has confirmed that the way many of the Government’s important contracts are managed is inadequate and the capability of both suppliers and Departments needs to improve.
“The failings could, if left unchecked, lead to future erroneous charging for services delivered or opportunities missed to intervene at the right point in order to make necessary corrections. Allowing this situation to continue is not an option.”
The Cabinet office will report on its progress in implementing the report’s recommendations in the Spring 2014.
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