Source · Select Committees · Public Accounts Committee
Recommendation 15
15
Acknowledged
The Department told us that factoring in consideration of profit margins before these PPE contracts...
Conclusion
The Department told us that factoring in consideration of profit margins before these PPE contracts were awarded was not possible. While it agreed that the best way to mitigate against excessive profiteering was to build such contingencies into the contract it argued that the reality of the global market at the start of the pandemic meant that was simply not feasible.43 It also conceded that this meant that taking action retrospectively against suppliers profits was unlikely to be possible. The Department clearly still believes that it had an appropriate balance in place at the start of the pandemic that ensured some due diligence checks were performed but still enabled it to secure deals for PPE quickly.44 It said that while it is possible to look back in retrospect and reach different conclusions on decisions made, it felt it had the broad framework and risk appetite correct for the circumstances it faced.45 A more formalised due diligence process wasn’t established until May 2020 but as the NAO reported 46 out of 115 contracts awarded through the VIP lane pre-dated this.46
Government Response Summary
The government agrees with the Committee’s recommendation and is implementing a commercial reset to prevent issues with due diligence and conflicts of interest from occurring again in the future.
Government Response
Acknowledged
HM Government
Acknowledged
4: PAC conclusion: The Department had insufficient due diligence checks at the outset of the pandemic to prevent potential profiteering and to identify conflicts of interest. 4: PAC 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. 4.1 The government agrees with the Committee’s recommendation Recommendation implemented 4.2 In responding to COVID-19, government officials used legally compliant award procedures designed for use in emergencies. The department has well-established policies, processes and due diligence systems for use outside of emergencies. All tendering activities comply with the relevant standards, processes and criteria set out in the Public Contracts Regulations. 4.3 In May 2021 the Cabinet Office published Procurement Policy Notice (PPN) 04/2021, covering the issue of conflicts of interest in awarding contracts and interpretation of the relevant exclusion provisions where contractors commit certain breaches. The department has completed implementation of this PPN, having introduced a clear process ensuring that conflicts of interest are considered throughout the procurement lifecycle. 4.4 Where additional procurement activity may be needed to meet future pandemic requirements, it will be conducted in accordance with departmental policy developed specifically for emergency responses. New PPE procurement will be undertaken by category experts in SCCL. 4.5 As part of the Commercial Reset, the department has taken steps to improve governance and support to policy teams when spending public money, especially in an emergency situation. In addition, in May 2021 Government published The Sourcing Playbook, providing further enhanced guidance covering risk allocation, pricing approaches and assessing and monitoring the financial standing of suppliers to enable better understanding of cost-drivers and profit margins. 4.6 Further information, including the department’s commercial capability activity, is set out in a letter sent to the Committee in parallel to this Treasury Minute.