Government’s contracts with Randox Laboratories Ltd

The Department failed to meet basic requirements to report publicly ministers’ meetings with external parties. The Ministerial Code requires all departments to report meetings that ministers have had with external parties and any hospitality received, in the interests of transparency and accountability. The Department properly declared only four of the eight meetings on testing that involved its ministers and Randox. In addition, it kept minutes of only two of these meetings. Details of some of these meetings emerged only because documents relating to Randox’s contracts were requested by MPs through the ‘Humble Address’ process and published in February 2022. The Department also did not declare hospitality that the then Secretary of State had received from Randox’s managing director on a ministerial visit to Northern Ireland in 2019 and Mr Hancock has since told us that his ministerial private office considered it was a political event and therefore did not need to be declared.1 The Department’s disclosures and record-keeping have been well below the standards we would expect under any circumstances. In emergency situations it is even more important to ensure that information is correctly documented. Recommendation: In its Treasury Minute response, the Department should set out how it intends to strengthen its transparency processes and ensure that it enforces requirements and takes action where they are not followed.

The Department did not deal with potential conflicts of interest, despite clear concerns about Randox’s political connections. The Department did not show any evidence of taking any care over potential conflicts of interest when it awarded contracts to Randox. This was despite officials being aware of Owen Paterson’s contacts with Rt Hon Matt Hancock MP, the then Secretary of State for Health and Social Care, as a paid consultant for Randox while he was still a sitting MP, and the hospitality Mr Hancock received from Randox in 2019. For its first contract with Randox, the Department failed to identify any conflicts of interest, incorrectly 1 Letter from Matt Hancock, 20 May 2022 6 Government’s contracts with Randox Laboratories Ltd stating at the time that consideration of conflicts of interest was not applicable to that contract award. The Department was not able to answer clearly how it makes sure that those involved in procurement give due consideration to potential conflicts of interest in their decision making, even where interests are properly recorded or declared. The Procurement Bill, published in May 2022, contains new requirements on departments to record conflicts of interests relating to contracts. We are also concerned about the Department’s prioritisation of testing suppliers through VIP and priority routes, including those referred by ministers, MPs or Number 10. Suppliers that came through these routes were awarded £6 billion out of the £7.9 billion total of testing contracts awarded between May 2020 and March 2021. Recommendation: Alongside its Treasury Minute response, the Department should write to us to clarify the information it had on declared private interests and how it used this information to identify potential conflicts of interest in its procurement decisions. In addition to the expected new requirements to record conflicts of interest, government should strengthen its approach to ensure that conflicts of interest are not just documented,

The award of the first Randox contract did not receive adequate scrutiny from senior officials and the role of ministers in signing it off was unclear. The Department’s then Second Permanent Secretary had some visibility of the first contract awarded to Randox, but he did not approve it as we would normally expect. Instead, Lord Bethell, the then Minister for Technology, Innovation and Life Sciences, was asked by departmental officials to provide his authorisation to proceed with the contract. The Department says this was not formal approval of the contract, but in the absence of any other senior sign-off for the contract from either officials or ministers, the contract was signed by a deputy director. Normal processes for contract spend approvals involving the Cabinet Office were also by- passed during the early months of the pandemic, which meant that the Cabinet Office did not provide its approval for Randox’s first contract for testing services. Recommendation: Government should provide additional guidance to clarify the role of ministers in procurement processes, including contract discussions and approvals.

The Department failed to hold Randox to account for its performance against its first contract and awarded it another £328 million extension without competition. The Department did not set out any key performance indicators for Randox in its first contract and only introduced performance measures such as test turnaround times from July 2020 – a month after that contract was originally expected to end. When awarding the first contract, the Department saw Randox as a market leader and one of the few providers able to expand testing, but Randox still needed government support to fulfil the contract. The Department says that it was not surprised at Randox’s request for government help to secure necessary testing equipment, but details of the expected support were not clearly set out in the contract or considered when agreeing the contract price. Despite the performance issues with the first contract, which meant Randox took longer than expected to Government’s contracts with Randox Laboratories Ltd 7 increase its testing capacity, the Department still awarded a £328 million extension to Randox without competition in October 2020 and appeared by then to have already become heavily reliant on its services. Recommendation: We expect clear and definitive assurance from the Department that even where contracts are awarded in exceptional circumstances, it will set performance indicators and use these to hold providers to account.

The Department did not do enough work to determine whether Randox was making excess profits from its contracts with Randox. Randox’s published accounts do not yet cover the entire period of the contracts we considered, but they already show how Randox has substantially increased its profits and expanded its business since the start of the pandemic. Randox reported a profit of £177 million in the year to 30 June 2021, more than a hundred times greater than its £1.2 million profit for the 18 months to 30 June 2020. The company’s net assets also increased ten-fold in one year, from £17 million in June 2020 to £171 million in June 2021. However, the Department did not conduct like-for-like benchmarking of the price offered by Randox or consider supplier profit margins before awarding Randox its first testing contract. The Department told us that there was a more developed market of suppliers offering testing services by the time it awarded Randox’s contract extension in October 2020, but it again could not provide any evidence of negotiations on price or benchmarking conducted at the time. The Department was therefore unable to offer a view on whether there had been profiteering on testing contracts. Recommendation: The government should strengthen its commercial guidance on ensuring that profits are not excessive, by including profit level expectations and obligations to benchmark in contract decision making. 8 Government’s contracts with Randox Laboratories Ltd 1 Record-keeping and transparency

On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department of Health & Social Care (the Department) and the UK Health Security Agency (the Agency) about the government’s contracts with Randox Laboratories Ltd (Randox) during the COVID-19 pandemic.2 Government correspondence and other documents relating to these contracts were published by the Department in February 2022, in response to a ‘Humble Address’ motion passed by the House of Commons in November 2021.3

The Department failed to record in its own published transparency releases that Randox had attended four meetings on testing with ministers in 2020, although it did declare four other meetings involving ministers and Randox. Minutes or records of discussions were kept for two of these meetings.10 The Ministerial Code requires departments to publish details of ministers’ meetings with external organisations on a quarterly basis.11 However, details of some ministerial meetings with Randox emerged only because documents relating to Randox’s contracts were requested by MPs through the ‘Humble Address’ process and published in February 2022. The documents released included private emails and WhatsApp messages between ministers and Randox’s representatives that were not saved in the Department’s information systems at the time. The Information Commissioner has investigated the use of private correspondence channels at the Department, concluding in a July 2022 report that there were failings in the Department’s compliance with transparency obligations.12 The Department admitted to us that the omissions in recording and reporting ministerial meetings were “a straight error”. Its explanation was that transparency returns are completed by ministers’ private offices, and staff working in those offices had faced significant workload pressures at that time.13

The Ministerial Code further requires that hospitality received by ministers in a ministerial capacity is declared on departments’ quarterly transparency releases.14 During 8 Q 35, C&AG’s Report, para 13 9 Qq 85, 90–91, 122 10 C&AG’s Report, para 2.25 11 Cabinet Office, Ministerial Code, May 2022, para 8.14 12 Information Commissioner’s Office, Behind the screens – maintaining government transparency and data security in the age of messaging apps, July 2022 13 Q 75 14 Cabinet Office, Ministerial Code, May 2022, para 7.24 10 Government’s contracts with Randox Laboratories Ltd a March 2019 ministerial visit to Northern Ireland, Matt Hancock, the then Secretary of State for Health and Social Care, toured Randox’s premises. He also attended a private dinner and stayed overnight at a country estate owned by Randox’s managing director. None of these events were recorded in the Department’s transparency returns relating to hospitality or ministers’ external meetings. The Department said questions around the declaration of any hospitality received were for Mr Hancock to answer.15 Mr Hancock has subsequently written to us noting that at the time, his ministerial private office had made the judgement that both the dinner and overnight stay were political events and therefore did not need to be declared. He also noted that his stay had saved the taxpayer the cost of a hotel room. He also stated that he was not involved in any testing contract negotiations.16

In addition to the wider efforts to improve basic documentation, the Department told us that it had introduced measures such as spot checks by the principal private secretary to reinforce the importance of proper record-keeping in private offices. The Department explained that the measures were designed to ensure staff in private offices and policy teams always kept records of any discussions that had substantive government business as part of them or were relevant to decision making. This applied to both minuting of meetings and maintaining records of ministers’ engagements with external organisations.17 Conflicts of interest

Regulations governing public contracts require departments and other bodies to identify and manage conflicts of interest in the procurement process. The Procurement Bill, published in May 2022, reinforces these requirements and would also explicitly require departments and bodies to prepare conflicts of interest assessments before contracts are awarded.18 The Department acknowledged it had a clear responsibility to determine whether there are live conflicts of interest associated with those involved in decision making around contracts.19 However, in the case of the first Randox contract, the Department failed to carry out any identification or assessment of conflicts of interest. It erroneously stated on contract documentation that consideration of conflicts of interest was deemed “not applicable” because the contract was directly awarded under emergency procurement procedures.20

The Department did not appear to have considered potential concerns about Randox’s political connections in its decision making, such as Owen Paterson’s lobbying on behalf of Randox, hospitality offered to Matt Hancock by Randox’s managing director, or the company’s donations to the Conservative party. The Department said that it had been aware that Mr Paterson was a paid consultant for Randox while he was still a sitting MP, although it said this did not necessarily mean the company had been treated any differently to other potential suppliers. The Department noted it would not necessarily have been aware of Randox’s donations to the Conservative party or hospitality offered to ministers in a political capacity, and that these might not have been relevant to the consideration of conflicts of interest in this case. The Department said that it did not believe that Randox 15 Q 101 16 Letter from Matt Hancock, 20 May 2022 17 Q 85 18 Procurement Bill [HL], Part 5: Conflicts of interest, clauses 74–76 19 Q 103 20 C&AG’s Report, para 2.29 Government’s contracts with Randox Laboratories Ltd 11 had gained any benefit from its direct engagement via Mr Paterson or any other route.21 However, it is basic good practice to address, and be seen to address, any concerns where there may be a risk of conflicts of interest, including the perception of competing interests, impaired judgement or undue influence. This would involve identifying, documenting and managing risks that decisions may be influenced.22

Consideration of potential conflicts of interest is also relevant to other contracts with testing suppliers. Some suppliers offering testing services were referred to the Department by ministers, MPs or Number 10. The Department marked supplier offers as ‘VIP’ if they had been referred from these sources and the suppliers were given priority status. From May 2020 to March 2021, these priority suppliers received £6 billion of the £7.9 billion of testing contracts awarded during this period.23 The Agency’s view is that there was not a causal association between being a priority supplier and being awarded a contract, because it said every contract went through the same technical validation and commercial processes.24 21 Qq 76, 100–103, 112 22 Report by the Comptroller and Auditor General, Conflicts of interest, Session 2014–15, HC 907, 27 January 2015, paras 1.1–1.7, 3.7–3.8 23 C&AG’s Report, paras 1.10–1.12 24 Qq 93, 95 12 Government’s contracts with Randox Laboratories Ltd 2 Wider procurement issues Scrutiny of the contract

The negotiation and approval processes for the first contract awarded to Randox in March 2020 were unclear and not fully documented.25 The Department said that standard processes were in place at the time for commercial specialists to negotiate contracts, which included checking accreditations for services and tests, considering supply chain issues and assessing whether suppliers had the resources to deliver contracts. However, the Department admitted that it could not provide documentation to show any of this in writing for the Randox contract.26

The first contract did not receive the level of senior scrutiny and sign-off that we would expect for a contract of this size, particularly one awarded without competition. The contract was signed by a deputy director in the Department after officials received authorisation to proceed with the contract from Lord Bethell, the then Minister for Technology, Innovation and Life Sciences in the Department.27 However, Lord Bethell’s authorisation was not formal approval for the contract and the Department confirmed that ministers were not asked to sign off contracts. It added that at that time, contracts were being assured by the Department’s then Second Permanent Secretary, David Williams.28 The Department acknowledged that the lack of documentation to demonstrate formal approval for the first Randox contract was “deeply unfortunate”.29 The Department also confirmed that the head of NHS Test & Trace was not consulted about the award of the subsequent contract extension in October 2020.30

The Cabinet Office did not approve the first contract with Randox, as it would normally do for contracts worth over £10 million in line with its regime of commercial spending controls. The Department did not submit the Randox contract for approval before it was awarded, but said it brought the contract to the Cabinet Office’s attention after the fact, along with others that would also have required commercial spending approval.31 Contract performance

The Department did not include key performance indicators (KPIs) in its first contract with Randox against which it could judge how the company was performing. The Department said the reason it had not set performance measures in the contract was because its focus at the time was on building the system of testing capacity and understanding how to get that system to work most effectively. It added that there were a number of performance metrics that it did monitor on a frequent basis, some of them daily, as well as conducting weekly calls with Randox to discuss performance. However, the Department did introduce contractual KPIs for Randox’s subsequent contracts.32 25 C&AG’s Report, paras 11, 13 26 Qq 41–42 27 C&AG’s Report, paras 13, 2.6–2.7 28 Qq 44–46, 128 29 Q 47 30 Qq 86–88, Letter from the Department of Health & Social Care and the UK Health Security Agency, 13 June 2022 31 Q 111; C&AG’s Report, para 1.18 32 Qq 52–53; C&AG’s Report, para 17 Government’s contracts with Randox Laboratories Ltd 13

Randox asked for government help within weeks of being awarded its first contract to enable it to deliver its contracted level of tests. Randox needed access to specialist testing equipment held in universities and other laboratory facilities, which it and other suppliers received after ministers requested equipment loans on their behalf. The Department said it was not surprised at the amount of help Randox needed from government. The Department noted that contracts were explicitly written to allow for suppliers to ask for assistance on various fronts, which it did not consider unusual at the time.33 However, the National Audit Office’s review of available contract documentation found that, prior to the award of its first contract, Randox had not specified it would need government support to secure testing equipment required to fulfil the contract. The Department was also unable to demonstrate how such help was factored into its negotiations with Randox on price.34

The first contract was originally intended to run for 12 weeks, ending in June 2020. However, Randox faced difficulties meeting the service levels specified in the contract. There were a number of reasons for this, including Randox taking longer than expected to increase capacity as well as lower than forecasted demand for testing. The Department and Randox agreed that Randox would keep testing beyond the expected end of its contract in June 2020, and it met its contracted number of tests in September 2020. During the extended period that Randox continued testing to meet its contractual commitments, the Department established additional performance measures. These included test turnaround time targets introduced in July 2020, which measure the time taken to process tests.35

Despite issues with the performance of the first contract, in October 2020 Randox was awarded a contract extension worth £328 million (around two and a half times the value of the original contract), again without competition. At the time, the Cabinet Office questioned why the Department had not used a competitive tender for the extension. The Department explained that the months between March and October 2020 had been “extremely intense” and that it simply had not had time to go through a competitive contract process.36 It did, however, acknowledge that the testing market had matured by October 2020 and there was a more competitive range of suppliers.37 Contract documentation prepared before the extension was awarded noted that a competitive tender was not the preferred course of action for the Department because Randox was considered a fundamental part of meeting testing targets at that time.38 The Department told us that even though a variety of suppliers were providing testing services by then, Randox was “already an important part of the infrastructure” and that government needed to utilise all of the testing capacity available to it.39 Contract price and profits

For its first testing contract with Randox, the Department paid a price of £49.60 per single test. The contract price included the cost of supplying test kits, laboratory processing, transporting test kits and completed samples, and reporting of results. The Department could not provide details of contract negotiations prior to the contract’s award, including 33 Q 54; C&AG’s Report, para 15 34 C&AG’s Report, para 2.10 35 Q 54; C&AG’s Report, paras 16–17 36 Qq 59–60; C&AG’s Report, para 19 37 Q 39 38 C&AG’s Report, para 3.5. 39 Q 71 14 Government’s contracts with Randox Laboratories Ltd on the price.40 However, the Department believes it had standard processes in place at the time for interrogating costs and negotiating price reductions. The Department and the Agency acknowledged that no price benchmarking was carried out before the first contract was awarded. They said this was because there were no other companies offering an end-to-end testing service equivalent to Randox’s, so like-for-like comparisons could not be made at that time. The Agency added that the government’s aim at that stage of the pandemic was to build up testing capacity, which meant buying from all suppliers that could offer the necessary services rather than choosing among them.41

The Department said that in relation to contract pricing, it did not consider the advantage to Randox that might be gained by the company winning early government contracts for testing (for example, from setting itself up as an established provider of testing services). The Department reiterated that the focus at the time was on increasing testing capacity. This meant that even though the supplier market matured during 2020 and more suppliers came on board, the Department still had to engage with all suppliers able to provide services rather than choosing the most competitively priced ones.42 Nevertheless, Randox benefited from capital investment it was able to make as a result of its government contracts, with the cost of this capital spending factored into the price that Randox charged for its services. The company spent £70 million on building additional laboratory space and other set-up costs to deliver its contracts.43

The Department did not monitor the profitability of Randox before deciding to award contracts to the company. The Department said that when contracts were awarded in 2020, it did not have the time or the ability to undertake this sort of monitoring.44 The latest accounts Randox has filed with Companies House are for the year to 30 June 2021, in which it reported a profit of £177 million for that year. This is more than a hundred times greater than the profit of £1.2 million that Randox reported for the 18-month financial period to 30 June 2020 (which included the first three months of the pandemic).45 In addition, the company’s external auditors have issued a Qualified audit report in respect of two matters relating to stock balances, which may mean the profit for 2020–21 was higher than stated in the accounts.46 Any further profits from the COVID-19 testing contracts we looked at will fall into future financial years. The Department said it was not in a position to answer whether Randox could have been in financial difficulty if it had not received government testing contracts. It noted that due diligence would have looked at hazards and risks associated with the financial stability of the company, but it was not able to confirm this had been the case as due diligence on Randox was not documented.47

Randox’s published accounts do not yet cover the entire period of the contracts we considered. Its accounts for the year to 30 June 2021 reflect how the company has already expanded as a result of increased business through the pandemic. At June 2021, 40 Qq 22, 49; C&AG’s report, para 11 41 Qq 23–25 42 Qq 39–40 43 C&AG’s Report, para 14 44 Qq 37–38 45 Q 57; Randox Laboratories Limited, Annual report and financial statements for the financial year ended 30 June 2021; Randox Laboratories Limited, Annual report and financial statements for the 18 month financial period ended 30 June 2020. Randox originally reported a loss of £14.9 million for the 18 month period to 30 June 2020, but this was restated in the latest accounts to a profit of £1.2 million due to the correction of an accounting error. 46 Randox Laboratories Limited Annual report and financial statements for the financial year ended 30 June 2021 47 Q 57 Government’s contracts with Randox Laboratories Ltd 15 the company had net assets of £171 million, a ten-fold increase on its net assets of £17 million in June 2020. The company further noted that it had doubled its workforce since