National Audit Office report on Investigation into the management of PPE contracts

The Department of Health & Social Care (DHSC) continues to deal with the contract management issues caused by the need to purchase unprecedented volumes of PPE in 2020 due to COVID-19, with billions of pounds of taxpayers' money still at risk, according to the National Audit Office (NAO). 

Since February 2020, DHSC and its NHS procurement partner, NHS Supply Chain Co-ordination Limited (SCCL), have awarded almost 10,000 contracts for personal protective equipment (PPE). DHSC has so far spent £12.6 billion of the total £13.1 billion it expects to spend on almost 38 billion items of PPE. 

In the spring of 2020, DHSC was operating in an extremely over-heated global market with desperate customers competing against each other, pushing up prices and buying huge volumes of PPE. To secure the unprecedented amount of PPE estimated to be needed at the start of the COVID-19 pandemic, DHSC established two new procurement routes: the Parallel Supply Chain¹, established in late March 2020; and a new UK Make route², established in April 2020 to purchase PPE specifically from UK-based manufacturers.³ Some 394 contracts worth £7.9 billion were awarded through these two new procurement routes, largely to new or unknown suppliers to the NHS. Of these 394 contracts,115 were awarded to 51 ‘VIP lane' suppliers: suppliers suggested by government officials, ministers' offices, members of Parliament, senior NHS staff and other health professionals.

To date, DHSC has taken receipt of 31.5 billion items of PPE, with a further 1.4 billion items stored in China and 5.0 billion still to be received. Of the 31.5 billion items received, some 17.3 billion items have been delivered to frontline services and 14.2 billion items remain in UK storage. Between March 2020 and October 2021, it had cost the Department £737 million to store PPE, including penalty charges of £436 million because it had to store PPE in containers for longer than expected.

Assessing the total demand for PPE at the start of the pandemic was challenging due to the unprecedented nature of COVID-19 and the precise technical specifications for the PPE necessary to respond to it. DHSC estimates it now has 3.9 billion more PPE items than it needs; around 10% of the total PPE it purchased. The Department is trying to reduce excess stock by selling, repurposing, donating to other parts of the public sector or recycling. It is currently spending an estimated £7 million a month storing these items.

DHSC is also storing 3.6 billion PPE items that it considers are not currently suitable for frontline services, accounting for 11% of all PPE it has received. Some 64% of all items assessed as not currently suitable for frontline services were procured through the Parallel Supply Chain and UK Make. Over half (53%) of 51 VIP suppliers provided some PPE that DHSC considers is not currently suitable for frontline services. In addition, some 1.5 billion items of PPE currently in storage are estimated by DHSC to have passed their expiry date and therefore unable to be distributed.

The Department does not have a single end-to-end stock management system and the management data it holds contains inconsistencies between the volume of PPE ordered and quantities received. In data provided to the NAO, in 21 of 36 contracts there were differences of more than 1% between the number of PPE items contracted for and the number actually received. For 14 of these contracts, DHSC received a total of 107 million fewer items than it had contracted for. In the remaining 7 contracts it received 13 million items more than it had contracted for. Discrepancies arise for several reasons including the double counting of PPE as it is moved between locations, and some stock being missed from the count in cases where it is held in storage by the supplier.

DHSC has so far concluded discussions about contract disputes on 76 contracts with suppliers, worth £1.9 billion. Through contract cancellations and variations, DHSC has reported that it has reduced costs by £572 million. DHSC continues to manage 176 contracts where it is in dispute, where it believes it may not achieve full value for money, putting an estimated £2.7 billion at risk. DHSC assesses that 35% of these cases will not be resolved until 2023. The primary cause of contractual dispute is the quality of PPE that has been delivered.

The Department is continuing to assess potential fraud across the programmes and its current estimate is that this will be between 0.5% and 5.0% of expenditure.

Gareth Davies, the head of the NAO, said:

"The Department of Health & Social Care is still dealing with the results of its emergency procurement decisions, some 2 years after it first needed to rapidly buy PPE in unprecedented circumstances.

"The Department is continuing to manage 176 contracts where it believes it may not achieve full value for money, with an estimated £2.7 billion at risk."

-     ENDS    - 

Notes for Editors

1. A new Parellel Supply Chain: 357 contracts were agreed through this route, totalling £6.7 billion.
2. A new UK Make route: 37 contracts were agreed in this way, totalling £1.2 billion.
3. The remaining PPE contracts were agreed through the existing NHS Supply Chain Coordination Limited (SCCL): The SCCL was established in 2018 to manage the sourcing, delivery and supply of healthcare products and food for NHS trusts and certain other healthcare organisations across England. Some 9,492 contracts for PPE were agreed in this way totalling £5.2 billion. SCCL awarded contracts through existing frameworks some of which it recorded as purchase orders within existing contracts. We have described the awards made by SCCL as contracts, rather than purchase orders, to remain consistent with the reporting methodology previously applied.
4. This report follows the previous NAO report in November 2020, ‘The Supply of Personal Protective Equipment (PPE) during the COVID 19 pandemic' which focused on how the Department procured PPE. It highlighted a lack of transparency around the PPE programme and concerns around the management and distribution of PPE that had started to arrive in the UK.