Recommendation 11

The Department estimated that the accommodation providers could make profits of between 5% and 13%. We were concerned that this was about twice as large as would normally be expected by outsourcing companies and asked the Department whether it considered this level of profit excessive, given the level of risk taken on by providers. The Department said that it benchmarked these expected profits against information held by the Cabinet Office and Crown Commercial Service on similar contracts, and concluded they were reasonable. It asserted that this “was explored thoroughly, tested and assured by others in Government with an understanding of a much wider range of contracts with similar risk profiles”.26 As part of the new contracts, the Department intended to use ‘open book’ accounting to assess providers’ profits from the early months of the contracts.27 The Department told us that it would carry out this open book exercise annually, and would begin working with providers in the coming months to review their data as they were now a year into the contracts. The Department explained that the contract requires the providers to share with the Department any profits made above that declared in their bids.28 Transparency of performance