Civil servants have seen it as a “badge of pride” to transfer
“massive” risk to government suppliers, Serco's chief executive
Rupert Soames told MPs on the Public Administration Committee
today.
He said Serco had been “through the valley of the shadow of
death” in the wake of the tagging scandal and had, at one point,
been in "severe danger of collapse", prompting bi-weekly meetings
with the Cabinet Office and Treasury as Serco sought to shore up
its finances.
While more public services were now being run through private
suppliers, ministers had tried to sharpen Whitehall's dealings
with contractors over the past six years by setting up the
central Crown Commercial Service to oversee procurement from the
centre of government.
Soames suggested government was partly to blame for Serco’s
troubles because of the way it had sought to overload contracts
with excessive risk.
“What has happened is two things: the government got into a place
where it was advised to do massive transfer of state risk onto
suppliers,” he said.
“And it became a badge of pride to go and transfer as much risk
onto suppliers as you could. At the same time, suppliers, I
think, through foolishness and incompetence — certainly on our
part on a couple of things — were foolish enough to say ‘yes’.”
He told the committee that his firm stood to lose £120m on the
COMPASS contract because it was now providing housing for far
more asylum seekers than had been expected when the deal was
originally signed, and said government needed to do more to
ensure suppliers were properly informed at the bidding stage.
“This was a contract where we were told when we took it on that
we should expect broadly flat numbers of people to look after —
about 5,000 people in the north west and Scotland for the period
of a seven year […] contract."
He added: “The numbers we’re looking after are up 200%. We’re
looking after 8,000 more people than we were led to expect at the
beginning of the contract. This is costing us getting on for
£120m in losses — we’re losing £120m on that contract.”
The Serco chief, who was brought in to run the organisation after
the 2013 MoJ tagging scandal, said he believed that the “greater
sophistication and toughness of the Cabinet Office” from 2010 had
led to “the pendulum on risk transfer swinging too far”, placing
a greater strain on suppliers.
And he criticised the practice of putting out some “highly
sensitive” government services to online bids, a change initiated
by the Crown Commercial Service in an effort to drive down costs
and open up bidding to smaller suppliers.
“Now, you had to pre-qualify to get there… But I do not believe
that that is a sensible way to procure services for tens of
thousands of vulnerable people,” he said.
“Serco, along with others, went and got buyer’s fever — we bid
too low. Most of the losses on the COMPASS contract have come
from two things — one is we bid too low, silly us, and the other
thing is that […] all the state risk of that contract moved over
on to us.”
He welcomed recent changes at the CCS, which has recently come
under the leadership of government chief commercial officer
Gareth Rhys Williams and published fresh guidance on contracts.
The central government procurement body had, Soames said, now
started stressing the importance of departments “taking some
responsibility for the quality of the data in the bidding
documents” to ensure that suppliers were better informed about
the scale of the contracts they were taking on.
