Recommendation 8

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