Source · Select Committees · Public Accounts Committee
Recommendation 11
11
The Department estimated that the accommodation providers could make profits of between 5% and 13%.
Conclusion
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
Government Response
Not Addressed
HM Government
Not Addressed
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.