Source · Select Committees · Public Accounts Committee
Recommendation 8
8
The Department told us that it knew at the start of the transformation programme in...
Conclusion
The Department told us that it knew at the start of the transformation programme in 2016 that COMPASS was under-priced. It explained that it carried out a ‘should cost’ model to establish a reasonable range of costs, which indicated that the new services should cost between 20% and 31% more.18 The Department is paying an estimated 28% more to providers, but the NAO found that with more bids it may have been able to secure better prices. The Department awarded three out of seven regions to the sole bidder and had to restart the competition in two regions as there were no initial bids. In total, the Department received bids from only four companies.19 We asked whether this lack of competition left the Department a customer in a seller’s market. The Department asserted that there had been competition within some regions and that this enabled it to see that there was market pressure. It explained that it had benchmarked across different regions, including those where there had been less competition, to ensure that the prices it was paying were comparable across the country. Overall, it considered retaining the incumbent providers and attracting a new provider was a good outcome from the procurement.20 However, one of those incumbent providers, Serco, paid £7 million in service credits for not meeting performance standards under COMPASS. We asked why, when their performance had been below standard, they were still able to participate in the new contracts. We were concerned that this suggested that existing providers already had performance challenges.21
Government Response
Not Addressed
HM Government
Not Addressed
4.1 The government agrees with the Committee’s recommendation. Ta rget implementation date: July 2021 4.2 The contracts contain mechanisms by which the department can ensure value for money, including to apply service credits where provider performance fails to meet contractual standards, to assess providers’ profits using open book accounting principles, and to share profits. The work on using the contractual ‘open book accounting’ clause to ensure value for money has been temporarily paused as the department experiences system wide stress and prioritises what is most important in response to the many challenges of the pandemic. The department intends to restart this work in 2021 and will look back through the period since the contracts became operational. The department is also taking significant steps to strengthen its contract management approach and commissioned external expert advice which was received in September 2020. The department is revising the structures through which the contracts are managed to ensure that roles are more clearly defined and sufficiently resourced for all aspects of contract management to operate fully effectively. It is developing more robust operating procedures with more formalised operational training to be provided, as well as taking steps to improve the capture and sharing of information.