Written statement to Parliament

Statement on review of major government contracts

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Francis Maude has made a statement to the House of Commons about 2 reviews that examine major contracts held by government.

The Rt Hon Lord Maude of Horsham

Outside providers deliver high-quality public services every day. Public services are too important to too many people to be allowed to be the monopoly of the public sector. We need a vibrant mix of the very best suppliers – a hybrid economy of diverse partners. But the key to ensuring taxpayer value and high-quality services is in improved supplier management.

On 11 July the Justice Secretary made a statement to the House about significant anomalies in the billing practices under the Ministry of Justice’s Electronic Monitoring contracts with Serco and G4S. Since then the government’s response has been rigorous. The Justice Secretary has led extensive work within the Ministry of Justice. At the same time I initiated a cross-government review with PWC, Moore Stephens and a highly experienced Oversight Group. This reviewed 28 of the largest contracts held by Serco and G4S worth £5.9 billion in total.

Today we publish those 2 reports. They provide clear evidence that contract management in government requires improvement. There were examples of good practice and skilled work by officials across Whitehall. But in the majority of contracts reviewed across government there are weaknesses in the way contracts are managed, some of which are significant.

The Cross Government Review found no evidence of deliberate acts or omissions by either firm leading to errors or irregularities in the charging and billing arrangements on the 28 contracts investigated.

The review found that there were deficiencies in key controls being applied to the invoice and payment processes and there is therefore a risk that over-charging may have occurred. The review’s assessment of the deficiencies has determined that, in all but 3 cases, the impact is considered unlikely to be material (where ongoing work will establish with more confidence the significance and impact of the risks identified). Nevertheless, the issues found across government are sufficiently important that senior management attention is recommended. The failings could, if left unchecked, lead to future erroneous charging for services delivered or opportunities missed to intervene at the right point in order to make necessary corrections.

These weaknesses fall into 7 themes and the report makes 8 specific recommendations to address them. Work is already underway to address problems with commercial capability and contract management as part of the Civil Service Reform programme. Indeed for the past 3 years, the government has been frank about our challenges in these areas.

The new recommendations from this review build on our on-going work through the Efficiency and Reform Group, including to establish a Crown Commercial Service and professionalise procurement under the leadership of the newly-created Chief Procurement Officer in the Cabinet Office. The review underscores the urgent need to address these longstanding weaknesses and we will redouble our efforts to do so. I accept the report and its recommendations in full and I have placed a copy of the report in the Library of the House.

Today marks the conclusion of the reviews that the Cabinet Office and the Ministry of Justice have been conducting into Serco contracts. No further evidence of impropriety has been found beyond those on the Electronic Monitoring and Prisoner Escorting contracts.

Over the past few months Serco has engaged constructively with government, setting out a corporate renewal plan that is now well advanced. We expect to provide a final opinion on the adequacy of the plan in January, following advice from the Oversight Group and independent advisers, who will also continue to monitor implementation. As set out by my Rt Hon Friend the Secretary of State for Justice, we have agreed a settlement with Serco to recompense the taxpayer £68.5 million excluding VAT for the overcharging found in an audit of Ministry of Justice contracts.

This is a positive step forward for both parties and one that government welcomes.

Alongside the discussions with Serco, we have continued to engage G4S, and anticipate a further update in due course.

Published 19 December 2013