Contracts Update

Thursday 19th December 2013 Written Statements

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

On 11 July, Official Report, column 573, I made a statement to the House about significant anomalies that my Department had identified in the billing practices under MOJ’s electronic monitoring contracts with G4S and Serco. An initial audit of the contracts had found that the MOJ had been charged by the two companies in ways not justified by the contracts and for people who were not in fact being monitored. Their conduct under these contracts is now subject to a criminal investigation by the Serious Fraud Office.

G4S and Serco withdrew from the ongoing competition for the next generation of electronic monitoring contracts. The new contracts will deliver state-of-the-art GPS tracking technology, better value for money and robust contract management arrangements.

From the outset I made clear that I intended to take robust action to deal with evidence of unacceptable conduct by suppliers under my Department’s contracts, and to recover any monies overpaid as a result of these practices.

I requested an audit of every contract my Department holds with G4S and Serco. I also asked for an independent review into the health and robustness of all aspects of contract management across the MOJ. Today marks the conclusion of these reviews. This statement deals with matters relating to my Department’s contracts. The Minister for the Cabinet Office will be making a separate statement on the cross-Government review of contracts held by the two companies and on their progress in achieving corporate renewal.

Serco

Serco agreed to a forensic audit of the electronic monitoring contract, conducted by PricewaterhouseCoopers, including examination of email traffic relating to the contract. On the basis of this analysis Serco has now agreed to repay £68.5 million excluding VAT. This figure reimburses the Government for money owed on the electronic monitoring contract and for other costs incurred, including the cost of investigating these matters. It also includes £4.2 million which will be set against future costs incurred as we transition to new electronic monitoring arrangements. I am satisfied on the basis of PricewaterhouseCoopers’s forensic audit, and having taken appropriate advice, that this represents a good deal for the taxpayer. As with all full and final settlements, in the event of criminality being established with material impact, we would look again at our contractual position.

On 28 August I announced that Serco’s contract for escorting prisoners to courts (the PECS contract) had been referred to the City of London police. This followed the discovery that members of Serco staff had been recording prisoners as having been delivered ready for court when in fact they were not. Serco agreed at that point to repay past profits and forgo future profits earned on the PECS contract, and the company has now confirmed that it will repay past profits amounting to £2 million excluding VAT. The contract remains subject to MOJ supervision and is being robustly managed.

The PricewaterhouseCoopers audit did not find any further evidence of material issues on Serco contracts beyond electronic monitoring and PECS.

G4S

MOJ’s audit of G4S contracts has uncovered problems with two further contracts held by G4S for facilities management in the courts. Specifically, the audit revealed serious issues relating to invoicing, delivery and performance reporting against both contracts. While at this stage my Department does not have evidence to confirm that dishonesty has taken place, we have today, following legal advice, referred both matters to the Serious Fraud Office in order to establish whether this is the case.

The PricewaterhouseCoopers audit did not find any further evidence of material issues on any other MOJ contracts held by G4S.

Unlike Serco, G4S has not yet agreed a position on repayment. However, discussions are ongoing and I remain determined to pursue all legal options to recover the taxpayers’ money.

Rehabilitation Reforms

In the light of these developments, both G4S and Serco have decided to withdraw from the MOJ competition for rehabilitation services. This means that neither company will play a role as a lead provider of probation services in England and Wales in this competition.

However, the Government have left open the possibility of either supplier, as part of their corporate renewal, playing a supporting role, working with smaller businesses or voluntary sector providers in order to support our objective of achieving a diverse market. Any proposals will be considered as part of a rigorous evaluation process, and will take account of the Government’s wider assessment of the companies’ progress in achieving corporate renewal.

MOJ contract management review

While it is evident that both suppliers’ conduct under these contracts has been wholly unacceptable, I made clear in my statement in July that my Department had been found wanting in its management of the electronic monitoring contracts. Officials took immediate steps to address the emerging issues. A new contract management team was put in place to manage the electronic monitoring contracts and members of MOJ staff were placed permanently at each contractor’s site to monitor performance on the ground. The PECS contract was immediately placed under close supervision.

I also asked Tim Breedon, the MOJ’s lead non-executive director, to conduct an independent review of all aspects of contract management across the Department. This review was informed by a detailed assessment by PricewaterhouseCoopers of the 15 largest and highest risk contracts from across the MOJ. Each was assessed against the NAO framework of best practice in contract management.

The review found evidence of good practice but also significant and long-standing weaknesses in the MOJ’s management of contracts. The report makes proposals for action to achieve best practice across seven distinct areas. These proposals are consistent with those emerging from the cross-Government review. I am very grateful to Tim Breedon for overseeing this comprehensive review. I have commissioned a programme to implement the report’s findings in full across the MOJ and will have processes in place to do this by the end of March 2014. A copy of the report is being placed in the Libraries of both Houses.