Recommendations & Conclusions
10 items
4
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
The Department had insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest. We recognise that the Department had to act quickly at the start of the pandemic to secure vital supplies of PPE but believe that there was still …
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The Department had insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest. We recognise that the Department had to act quickly at the start of the pandemic to secure vital supplies of PPE but believe that there was still scope to perform appropriate due diligence, particularly on potential new suppliers. The Department acknowledges that before May 2020 not all due diligence checks on areas such as financial, commercial and legal issues were completed before awarding contracts. A formalised eight-stage due diligence process was established in May 2020 but 46 out of 115 contracts awarded through the VIP lane pre-dated this. The Department believes that it had the necessary due diligence checks considering the circumstances and environment of the COVID-19 pandemic in which it was purchasing PPE. At no point was consideration given to the extent of the profit margin that potential suppliers would be taking on payments for PPE. Neither was consideration of any potential conflicts between individuals making referrals through the VIP lane and the companies they were referring. We are therefore unsurprised to see the reports of excessive profits and conflicts of interest on PPE contracts. Recommendation: The Department should set out in its Treasury Minute response how its commercial reset will ensure that sufficient processes are now in place to prevent such issues occurring again.
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Government response AI summary
The government states that the commercial reset will ensure sufficient processes are now in place to prevent issues such as insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest from recurring, and highlights existing …
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HM Treasury
5
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
The Department has handed back responsibility for the PPE programme to Supply Chain Coordination Limited (SCCL) with many issues still to be resolved. Since October 2021, oversight of SCCL transferred from the Department to NHS England and in April 2022 the Department transferred the responsibility for managing the supply of …
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The Department has handed back responsibility for the PPE programme to Supply Chain Coordination Limited (SCCL) with many issues still to be resolved. Since October 2021, oversight of SCCL transferred from the Department to NHS England and in April 2022 the Department transferred the responsibility for managing the supply of PPE to SCCL. This means that responsibility for the logistical management and distribution of PPE across the 70 sites that the Department built up now resides with SCCL. In other areas, however, such as the resolution of the 176 contracts in commercial dispute, responsibility is to remain within the Department. The Department was due to produce a PPE strategy where we expect roles and responsibilities to be clearly set out, but this has been delayed and is now not expected to be completed until summer 2022. Recommendation: The Department should release its PPE strategy in full as soon as possible, setting out how it will work with SCCL and what the respective roles and responsibilities of each organisation will be in the ongoing management of contracts and future procurement activities. If the strategy is not available by the end of September, the Department should write to the Committee to explain the reason for the delay. Management of PPE contracts 7
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Government response AI summary
The government agreed to release its PPE strategy and update the Committee on plans for publication, aiming for Autumn 2022 implementation, while the NHS Supply Chain took over PPE supply and distribution in April 2022.
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HM Treasury
6
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
The future of the UK-based supply chain for PPE is unclear. The global demand for PPE at the start of the pandemic pushed up the prices from suppliers around the world. In an effort to create a more resilient UK-based supply chain, the Department encouraged some UK manufacturers to repurpose …
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The future of the UK-based supply chain for PPE is unclear. The global demand for PPE at the start of the pandemic pushed up the prices from suppliers around the world. In an effort to create a more resilient UK-based supply chain, the Department encouraged some UK manufacturers to repurpose their businesses to supply PPE. It signed 37 contracts under its “UK Make” programme and collectively, these contracts helped deliver 3.9 billion items of PPE. However, now that demand for PPE has reduced and with the Department holding a large amount of excess stock, it is unclear what role these suppliers might play going forward. Only seven of them have been moved onto SCCL’s procurement frameworks enabling them to bid for future PPE contracts. In the event of a future pandemic, it is unclear what role these suppliers might be expected to play to meet the renewed demand. Recommendation: The Department should explain in its Treasury Minute response what the role of UK based suppliers of PPE is expected to be going forward. This should include what role UK-based suppliers can expect to play in ongoing procurement activity and what the expectation is for capacity to be increased in the event of future pandemics. 8 Management of PPE contracts 1 The management of PPE stock
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Government response AI summary
The department has established a resilient UK-based supply chain and contracts have been signed with around 30 UK-based companies. The department is working with NHS Supply Chain to help offer UK manufactured products to the health and care sectors where possible.
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HM Treasury
7
Conclusion
Twelfth Report - Management of PPE cont…
Accepted
Alongside reducing excess stock, the Department is also having to consider what is an appropriate level of PPE to hold as a stockpile. We asked it whether it had created another strategic reserve of PPE in preparation for the possibility of a future pandemic.11 The Department noted that it had …
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Alongside reducing excess stock, the Department is also having to consider what is an appropriate level of PPE to hold as a stockpile. We asked it whether it had created another strategic reserve of PPE in preparation for the possibility of a future pandemic.11 The Department noted that it had a large “surplus”, but the size of the future stockpile it might hold had yet to be determined. Two factors were noted as having a large effect on this decision; the cost of storage and the potential for items in the stockpile to go out of date.12 The Department has seen how expensive storage costs can be over the last two years, spending £737 million on storage by the end of November 2021.13 It told us, however that it is now confident that it has reduced the monthly storage costs it is paying for PPE.14 However, it is still paying around £7 million a month in storage costs just on items it currently deems to be excess.15 The absence of a full integrated stock management system
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Government response AI summary
Operational responsibility will transfer to the NHS Supply Chain on 1 April 2023, with the department retaining ownership of this stock for accounting purposes. The department’s current working assumption is that, subject to suitability, products held in excess will be transferred to a future stockpile.
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HM Treasury
12
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
The NAO reported that of the 176 contracts in dispute, most of these were still in the early stages of being resolved. Eighty-three of the 176 contracts are still in the first stage of the commercial resolution process with a further 59 having entered formal commercial discussions. At present, no …
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The NAO reported that of the 176 contracts in dispute, most of these were still in the early stages of being resolved. Eighty-three of the 176 contracts are still in the first stage of the commercial resolution process with a further 59 having entered formal commercial discussions. At present, no cases have moved into the litigation stage of the commercial dispute process.30 Despite this, the Department denied that there is a logjam in resolving these cases and said that there was a team dedicated to resolving these disputes within the Department. Much of the work of that team revolves around checking that the PPE provided meets the technical specifications to then be released into the health and social care sectors.31 That team is also expected to draw on the experience within the Department’s commercial function, as well as government’s wider commercial expertise, where relevant.32 Although it was reluctant to go into specifics on commercial negotiations the Department said it was confident that it was making good progress against its quarterly targets for resolving these cases.33 The NAO, however, has reported that the Department is forecasting that 35% of these cases will not be resolved until 2023.34
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Government response AI summary
The government agreed to explain its progress in resolving the 176 disputed PPE contracts and will provide a summary update on the progress of negotiations as a whole in confidence to the Committee. A Dissolution Team has been commissioned until March 2023 with quarterly targets …
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HM Treasury
13
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
We asked the Department what its assessment of fraud was amongst these contractual disputes. Although it conceded that some of the 176 contracts were of interest from a fraud perspective it was unwilling to give much information about any specific work it was undertaking beyond stating that it was working …
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We asked the Department what its assessment of fraud was amongst these contractual disputes. Although it conceded that some of the 176 contracts were of interest from a fraud perspective it was unwilling to give much information about any specific work it was undertaking beyond stating that it was working closely with internal fraud teams and the broader fraud authorities.35 As with the notion of contractual disputes being commonplace, it also argued that “fraud in contracting is a fact of life” and that the best it could do was to aim to minimise it and recover amounts when fraud is detected.36 When pushed on the timescales for any action that it might eventually take against fraudulent suppliers the Department simply said if that involves going to court then that “takes as long as it takes”.37 It told us that its current assessment is that these PPE contracts have 27 Q13–14 28 Q15 29 Q16 30 C&AG’s Report, Figure 14 31 Q58 32 Q61 33 Q60 34 C&AG’s Report, para 3.8 35 Qq19, 22 36 Q21 37 Q25 12 Management of PPE contracts been no more susceptible to fraud than the average across public sector procurement.38 The NAO reported that this assessment means that PPE fraud could be anywhere within a range of 0.5% to 5.0% of PPE expenditure. On contracts signed by the Department this could mean fraud worth as much as £400 million.39 PPE profits and conflicts of interest
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Government response AI summary
The government agreed to update the committee on how it is working with relevant authorities in assessing and acting on any fraudulent cases. The department takes all allegations of fraud extremely seriously and, where appropriate, allegations are thoroughly investigated and the strongest possible civil and …
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HM Treasury
14
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
We wanted to understand the Department’s view of profits made by PPE suppliers and intermediaries, particularly on contracts that have failed to deliver adequate PPE, many of which came through the VIP referral route. Reports continue to emerge of the vast profits that some individuals and companies made through supplying …
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We wanted to understand the Department’s view of profits made by PPE suppliers and intermediaries, particularly on contracts that have failed to deliver adequate PPE, many of which came through the VIP referral route. Reports continue to emerge of the vast profits that some individuals and companies made through supplying PPE despite much of it being not fit for purpose. One example that we asked about was PPE Medpro, a company that did not exist until May 2020, yet was reportedly able to secure a £76 million profit supplying PPE to the Department.40 The Department was reluctant to give any specifics on this case but said that all of the PPE contracts signed “went through exactly the same due diligence process” and that the decision to award a contract to PPE Medpro would have been made on the basis of the price it was offering compared to other market prices.41 We note that since giving evidence to us, further reports suggest that the National Crime Agency has launched an investigation into this contract with several properties related to the company searched and documents seized.42
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Government response AI summary
The government states that the commercial reset will ensure sufficient processes are now in place to prevent issues such as insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest from recurring, and highlights existing …
Read full response →
HM Treasury
16
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
One due diligence check that did not appear to be applied was a consideration of potential conflicts of interest on PPE referrals. The Department confirmed that when signing off on these PPE contracts the accounting officer did not normally have any information about the source of the referral.47 It also …
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One due diligence check that did not appear to be applied was a consideration of potential conflicts of interest on PPE referrals. The Department confirmed that when signing off on these PPE contracts the accounting officer did not normally have any information about the source of the referral.47 It also said that this process was the same regardless of whether the referrals came through the VIP lane or not.48 The very nature 38 Q22 39 C&AG’s report, para 3.12 40 Q84 41 Qq84, 87 42 For example, The Guardian, 29 April 2022 43 Q29 44 Q28 45 Q73 46 C&AG’s Report, para 1.6 47 Q84 48 Q85 Management of PPE contracts 13 of the VIP lane, however, meant that potential conflicts of interest were inherently more likely for VIP lane referrals. Turning again to the example of PPE Medpro, we asked the Department what additional checks were conducted on this company given that the health minister had previously said that the Department was aware of a link between the initial referrer, Baroness Mone, and PPE Medpro. The Department refused to be drawn on the specifics of this case but again reiterated the argument that there would have been no difference in the level of checks conducted between any of the contracts awarded.49 49 Qq84–86 14 Management of PPE contracts 3 The future of the PPE programme SCCL’s role going forward
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Government response AI summary
The government agreed to set out how its commercial reset will ensure sufficient processes are now in place to prevent issues of profiteering and conflicts of interest from recurring. The department has well-established policies, processes and due diligence systems for use outside of emergencies. All …
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HM Treasury
17
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
Prior to the pandemic, the role of procuring and managing PPE was largely the responsibility of Supply Chain Co-ordination Limited.50 In March 2020, when the Department realised that SCCL alone would not be able to procure the volume of PPE required, the Department took a more central role in PPE …
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Prior to the pandemic, the role of procuring and managing PPE was largely the responsibility of Supply Chain Co-ordination Limited.50 In March 2020, when the Department realised that SCCL alone would not be able to procure the volume of PPE required, the Department took a more central role in PPE procurement.51 SCCL continued play an active role though, procuring a total of 17.4 billion PPE items through contracts worth £5.2 billion. With the need for further procurement now seen as unlikely, the Department passed responsibility for managing the supply of PPE back over to SCCL from April 2022.52 Oversight of SCCL was transferred from the Department to NHS England and NHS Improvement in October 2021.53 NHS England’s Chief Commercial Officer is now the Senior Responsible Officer for SCCL and meets quarterly with the SCCL executive team to discuss performance.54
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Government response AI summary
The government agreed to release its PPE strategy, setting out the roles and responsibilities of the Department and SCCL in managing contracts and future procurement. Responsibility moved to NHS Supply Chain in April 2022. The department committed to publishing the strategy and will update the …
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HM Treasury
20
Recommendation
Twelfth Report - Management of PPE cont…
Accepted
Prior to the COVID-19 pandemic there were not many businesses in the UK that specialised in producing PPE with most of it coming from overseas. The pandemic saw steep rises in global prices for PPE as demand for it surged throughout the world. As part of its initial pandemic response, …
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Prior to the COVID-19 pandemic there were not many businesses in the UK that specialised in producing PPE with most of it coming from overseas. The pandemic saw steep rises in global prices for PPE as demand for it surged throughout the world. As part of its initial pandemic response, the Department decided to try and encourage UK manufacturers to start producing PPE in order to increase the short-term supply and to help improve the UK’s long term resilience and ability to respond in the event of future pandemics.63 This “UK Make” strategy resulted in the Department signing 37 contracts with UK manufacturers worth £1.1 billion for 3.9 billion PPE items.64 The Department was complementary about the role of these UK suppliers saying that those 37 contracts were very successful and that some of these suppliers were “really creative at an early stage”.65
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Government response AI summary
The government agreed to explain the role of UK-based PPE suppliers going forward, noting that they have established a resilient UK-based supply chain (excluding gloves). Future procurement will include a focus on social value and environmental considerations, with NHS Supply Chain offering UK-manufactured products where …
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HM Treasury